Pension opt-out inducements for employees to be banned

25 June 2008

Offering employees incentives to opt out of workplace pension schemes is to be made unlawful, the government has announced.

The Department for Work and Pensions (DWP) said that changes to the Pensions Bill, planned for its reading in the Lords, will prevent employers from encouraging staff to opt out of workplace pensions with inducements such as higher salaries or one-off bonuses.

The measure will also cover employers who simply try to force their workers to opt out, the DWP said.

In cases where businesses flout the rules, employers will be required by the Pensions Regulator to put the worker back in the position they would have been in had they not been induced out of the scheme and to pay any arrears in contributions. If they fail to comply, they could also face a fine.

As part of the amendment, the DWP has proposed that there should be a time limit within which complaints have to be made by employees or investigations launched by the Regulator, the aim being to discourage the possibility of “frivolous claims” from staff.

The ban will come into force when automatic enrolment pensions are introduced in 2012.

Mike O’Brien, the Minister for Pensions Reform, said: “It is very important that people are allowed to meet their retirement expectations by building up the savings they need. Decisions on whether or not to save in a workplace pension need to be taken free of any unfair pressure. That’s why we want to prevent employers from trying to pressurise staff or tempt them with ‘live for today’ inducements into opting out of pension saving.

“Whilst it may seem attractive in the short term to accept an inducement to opt out, when people reach retirement with a lower pension, they're likely to regret taking the easy option.”

Under the changes, employers and workers would still be free to negotiate the details of remuneration packages, but these would need to meet or exceed the minimum standards on pension provision set down by the law.

The Pensions Bill forms part of the government’s drive to encourage people to save enough for their retirements.

The Bill will mean that all workers, between 22 and State Pension age, earning more than £5,035 a year (in 2006/07 earnings terms), will be automatically enrolled into a qualifying workplace pension scheme, such as personal accounts.

Where workers remain in a money purchase scheme, employers would contribute a minimum of three per cent of qualifying earnings, with total contributions of eight per cent made up through employee contributions and Government tax relief.

More information on the Pensions Bill is available at http://www.dwp.gov.uk/pensionsreform/