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- Within an employee’s one-month enrolment period, the employer must give the individual notice that they have been, or will be, automatically enrolled into a pension scheme.
- Under the 2012 pension reforms, employers have a duty to inform employees that they have the option to opt out of a pension scheme once they have been enrolled.
- However, the opt-out notice must not come from the employer, because there must be no inducement from the employer for the employee to opt out.
Case study: Santander ahead of the game
The pension reforms will not come as a huge shock to Santander, which has auto-enrolled staff into its pension scheme since December 2009. The Spanish-owned bank enrols all new staff into its trust-based defined contribution Santander Retirement Plan.
Santander is aware that before its staging date of February 2013, it will need to assess its pension offering to ensure it complies with the new regulations. Ian Barrett, deputy pensions manager, says: “The changes that will affect us are not huge because we already have auto-enrolment. We have about 80% take-up. That leaves 20% of employees who opt out of the scheme and primarily that’s because of affordability.”
Santander issues pension newsletters at least once a year. Barrett expects communication about the reforms to be very targeted.
“We would not go out to all employees generically about the reforms, it would be focused on what they mean
to us and our staff,” he says. “The regulations allow you to do it in writing, you cannot simply signpost staff to a website. That will not be difficult to cope with.”
Employers must be clear about their enrolment obligations under the 2012 pension reforms, says Tynan Barton
Starting in October 2012, over a four-year period, all employers will be required to automatically enrol all eligible employees (as defined in the Pensions Act 2008) into an occupational pension scheme. But there are strict guidelines on the information employers can give staff on their options once they have been enrolled.
The Department for Work and Pensions has yet to publish exact details of how and what employers can present to staff about the reforms, but The Pensions Regulator has published a series of guides that include outlines of employers’ communication duties.
Within a joining window (a one-month period from an eligible employee’s auto-enrolment date), the employer must provide the member of staff with notice that they have been, or will be, automatically enrolled into a pension scheme and what this means to them and their right to opt out and opt back in. Staff must also be given a statement outlining where to find further information about pensions and saving for retirement.
Robin Hames, head of technical, marketing and research at Bluefin, says the information given to staff has to present the process in a neutral light. “The communication needs to be fair,” he says. “It needs to give all the information in terms of the contributions and costs, and so forth, but it has to be in such a way that it does not actually position [the process] in any way to make it seem unattractive, or an inducement to opt out.”†
Although there seems some confusion over what an employer can say, it must be aware of what it cannot say. Ed Smithson, deputy head of employee benefits at Helm Godfrey, says: “Clearly, we do not want the employer inducing staff to opt out, so it has to be incredibly careful about what it says. It will have to be a very cold, clear statement of fact, for which we hope there will be a template of words that every employer will use.”
Different groups affected differently
Auto-enrolment will affect certain groups of staff differently, and each will require targeted communication.
First, there are the eligible employees, who will be auto-enrolled. There will be a three-month waiting period before an employer is required to enrol an eligible employee, but the individual can choose to opt in during this period. “An employer has to provide that information, but do they really want to?” says Smithson. “They may be using the three-month waiting period to get in sync with payroll, for example. If an employee wants to come in at day one, that might cause problems administratively.”†
Meanwhile, non-eligible employees – those who do not have to be auto-enrolled but can choose opt in and receive a contribution from the organisation – also need to be informed about their rights.
Smithson adds: “With opting in, it’s a question of what is the safest thing employers can say to meet their requirements and ensure they do not get into trouble. It is an employer’s duty to notify employees of their ability to opt out. But the employer cannot issue the opt-out notice, and there can be no link between the employer and the notice, to ensure there is no form of inducement going on.”
Communicating with low-paid and temporary staff is also a concern. Steve Herbert, head of benefits strategy at Jelf Employee Benefits, says: “If you take the hospitality industry as an example, there are plenty [of staff] who come to the UK purely to work for the summer. They might only be here for four or five months, but they are working. They will have only two or three months’ worth of pension contributions at a very low level, they will then return to their country, and that tiny pot of money will be left behind, never to be picked up again.”
Employers must also accept that a large proportion of the people they supply information to will be the younger and lower paid. Nigel Ferrier, executive chairman of Ferrier Pearce Creative Group, says: “Employers can’t issue the same information to everybody. People are at different life stages, have different experience levels and a different way of accepting information.”
Jamie Fiveash, director of customer solutions at B&CE, says communication is a vital issue for employers to address. “Given that employees have only one month to opt out, they could actually miss the opt-out period before they realise they are in a pension.”
With auto-enrolment applying to every new joiner, as well as every three years to those who opt out, pensions communication is set to be a monthly task for employers.
Guidance for employers on opting in and out
- An employer cannot opt out of its duty to automatically enrol eligible jobholders into a qualifying pension scheme.
- There is a specific timescale (the ‘opt-out period’) within which jobholders can opt out of active pension scheme membership.
- Jobholders must opt out by giving an ‘optout notice’ to the employer.
- In most cases, the opt-out notice should be provided to the jobholder by the pension scheme to ensure the decision is taken freely and without influence from the employer.
- When an employer receives a valid opt-out notice, they must refund to the jobholder any contributions deducted from pay, within specific timescales. Any money paid to the pension must be refunded to the employer.
- Jobholders may cease membership after the opt-out period expires. Any entitlement to a refund depends on the pension scheme’s rules and length of pensionable service.
- Employers must have processes to handle requests received from a worker to become a member of a pension scheme.
- Employers have a duty to enrol into a pension any worker who has the right to make such a request. They must be able to identify such staff.
- Employers have ongoing responsibilities once they have completed the initial stages of the enrolment process.
Source: The Pensions Regulator