EU directive casts shadow over contract-based pensions

The future of contract-based pension schemes looks uncertain with the advent of personal accounts.

A European Union Distance Marketing Directive does not allow employers to automatically enrol staff into contract-based pensions. This means that when legislation supporting the national pensions savings scheme comes into effect in 2012, staff who are not already enrolled into an occupational pension will have to be automatically enrolled in a personal account where an employer offers a group personal pension (GPP) or stakeholder scheme. Trust-based schemes are exempt from the directive.

Chris McWilliam, principal consultant at Aon Consulting, said: “As things stand, the Distance Marketing Directive states that people need to individually agree [to be enrolled in a pension scheme]. A stakeholder or a GPP [represent] a series of individual contracts that staff need to agree on.”

The Department for Work and Pensions (DWP) is trying to find a solution to allow employers to auto-enrol staff into contract-based pension schemes.

A DWP spokesman said: “As a longer-term strategy, the UK government is seeking clarification, or amendment of these [European] directives to permit automatic enrolment into workplace personal pensions. In the meantime, we are seeking a practical solution that maintains good quality workplace arrangements without compromising our wider objective to increase pension participation.”

Aon’s McWilliam said: “The expectation is that staff will be allowed to be auto enrolled [by 2012].”