Unilever has seen slightly more than one in four of its tiny non-member population opt out, with the majority close to or having reached the lifetime allowance limit for tax-privileged saving.
The company had a policy to enrol new starters into the scheme before the government's reform was put in place and had more than 7,500 members in the scheme. It was required to enrol only 329 people.
We updated our administration processes to ensure that we automatically enrol the right category of employee at the right time
Andy Rowell, Unilever
Eighty-seven people opted out, of whom 52 had benefits at or close to the lifetime allowance level. The consumer goods giant’s staging date was originally due to be April 2013, but the company took the option to postpone until July the same year.
The Unilever plan is a hybrid scheme allowing members to accrue career average benefits between pensionable earnings levels of approximately £5,500 and £53,000.
Earnings above the higher level accrue defined contribution benefits through a range of seven investment funds known as the investing plan. This section is also used for additional voluntary contributions.
Andy Cheseldine, partner at consultancy LCP, said the hybrid model used was unusual, but was typically put in place to provide certainty for low earners.
“It’s also a way of limiting your exposure,” he said. “You’re limiting your liability from longevity… rich people tend to live longer than poor people.”
Cheseldine added: “People who are lower earners have the greatest need for certainty in their pension. If you earn £100,000 you can afford to take some risk… it’s sharing risk, but sharing it with people who can better afford to.”
Unilever: our approach
The scheme itself was already compliant with auto-enrolment requirements, but its administration was updated to ensure it was carried out correctly.
“No changes were needed to the scheme design for auto-enrolment purposes,” said Andy Rowell, head of trustee services at Unilever. “Although we have needed to change some of our administration processes.”
He added: “We updated our administration processes to ensure that we automatically enrol the right category of employee at the right time, and also to ensure that we are set up to re-enrol employees who had previously opted out every three years.”
Other schemes such as the BT Pension Scheme also enrolled new starters before auto-enrolment was introduced.
Cheseldine said a number of schemes enrolled members by default, particularly those attached to paternalistic employers.
However, enrolment is typically written into employment contracts since the introduction of the European directive on the 'distance marketing' of consumer financial services, which states people cannot be put automatically into a financial product.
He added it was more common with employers who had a large proportion of workers under 22 years of age, or those making less than £10,000 a year in employers with a non-contributory fund.
Phil Duly, DC pensions consultant at Barnett Waddingham, said contractually enrolling employees was becoming less common since the introduction of auto-enrolment.
“Contractual enrolment is no longer a straightforward approach because of the way it interacts with auto-enrolment,” he said, adding that new starters who originally do not meet the minimum requirements for auto-enrolment may find themselves going through the enrolment process twice in quick succession.
“They might opt out of contractual enrolment and then be auto-enrolled,” he said. “If their earnings fluctuate once they’ve opted out, they might then need to be auto-enrolled."
