Between April and July 2014, about 25,000 employers will reach their auto-enrolment staging dates.
After this busy three-month period, millions of employees will have been brought into pension saving under the new pensions regime and, once the enrolment process is complete, employers will, hopefully, return to business as usual.
But an ongoing employer duty that could take up plenty of valuable administration time is managing the opt-in and opt-out processes.
Both processes are detailed in legislation and in guidance from The Pensions Regulator, and employers do not have much room to improvise.
Requests to opt in (for non-eligible jobholders) or to join (for entitled workers) must be in writing and be signed by the employee asking to opt in or join, or include a statement that confirms the requestor submitted the request personally (if sent electronically, for example by email).
Right to opt out
Employees who have been auto-enrolled have the right to opt out of their employer’s pension scheme. An opt-out notice must be submitted within one calendar month of either the date active membership was achieved, or the date the employee received their enrolment information, whichever date is later.
Workers will not be able to opt out before or after this window. The method of opting out is prescribed more tightly than for opting in.
The legislation envisages that employees will obtain an opt-out notice from the pension scheme (an employer can provide the opt-out notice only in limited circumstances), correctly fill out the opt-out notice, and give the filled-in notice to their employer.
Template opt-out notices that meet legal requirements are available from The Pensions Regulator’s automatic-enrolment website.
Many employers are, understandably, wary of communicating with employees about pension savings. There is a fine line between financial education and advice or promotion, and employers should be careful if communications stray into investment choices, contributions and outcomes, retirement options, purchasing an annuity and other decumulation options.
Some sensible suggestions for employers when dealing with questions from staff include: directing them to the pension scheme provider; providing pre-approved and factual information; flagging up government-backed information sources such as the Money Advice Service, The Pensions Regulator or the Pensions Advisory Service; or suggesting that employees obtain independent financial advice.
Employers must not actively encourage employees to opt out of their pension scheme. There are no restrictions on communicating with staff who have opted out as long as the communications do not induce an employee to remain out of pension savings.
As long as it does not amount to financial advice, employers are free to promote membership of their pension scheme as a valuable benefit, and can tell employees who have opted out how they can opt back in.
Communications will come back to the fore at least every three years, when employers go through their auto-re-enrolment process. Under current legislation, organisations will be required to re-enrol any employees who opted out.
This may require some careful management as employees discover that their initial opt-out is, in effect, reversed. On the plus side, employers will not have to re-enrol staff who have opted out in the 12 months preceding the re-enrolment date.
In all other respects, the re-enrolment process mirrors the auto-enrolment process. If employers are putting a lot of effort into documentation, they should consider keeping the results in an easily-accessible format, ready to use in three years’ time.
Ian Curry is an associate in the pensions team at Wragge and Co