Employers are being warned not to give employees the choice of opting out of a pension scheme in advance of them being enrolled.

The warning comes from the Pensions Regulator in a bulletin after it found a number of employers had given staff the chance of opting out of a pension scheme up front, either to help staff, or to avoid having to pay in to their scheme. Some employers had told the regulator that they had simply been unaware of their duties.

The regulator made clear that no matter what the original intentions of the employer, the result would always be the same – they would be in breach of their legal duties.

The pensions watchdog has published an online duties checker to guide employers on what they should be doing and in what order, from setting up a scheme, putting eligible staff into it and writing to them, and then offering them the choice of opting out.

Pension case study

The regular has cited the example of a car hire company which had a staging date in January 2016. The company had sent a letter to staff, telling them they would soon be automatically enrolled, and that if they wanted to opt out ahead of this time they should sign and return a form.

In April 2017, the regulator carried out an inspection after the company had claimed to have no workers, despite information that suggested otherwise. The employer then claimed that ill health, financial difficulties and bad advice from their accountant had contributed to their failure to comply with their auto enrolment duties. Their accountant had drawn up the letter that was sent to employees, with a tear-off slip asking them to complete it if they wanted to opt out.

As the company had failed to put any of its staff into a pension scheme, the regulator issued a compliance notice, warning that it would fine the company unless it acted quickly to correct the position.

Some weeks later, the company was able to supply the regulator with proof of its compliance, the letters it had sent to staff and confirmation that it had automatically enrolled the people who were eligible. It also provided evidence that it had backdated over a year’s worth of contributions to the original staging date, and were finally compliant by June 2017.

The key lesson from this case study is that employees cannot opt out before they have been enrolled in to a pension scheme.

If you feel you would benefit from a conversation with an expert on auto enrolment, and the duties imposed under the law on an employer, please contact a member of our Payroll Services team.


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