A new policy paper ‘Automatic enrolment and the law – how far do employers’ duties extend’ – summarises current minimum duties on employers to enrol ‘eligible jobholders’ into a pension of a minimum standard, to make the necessary contributions, to notify workers of their rights to opt out and so forth. But the paper warns that there are three reasons why employers in general, and larger employers in particular, may wish to do more than the legal minimum:
- There are examples in other countries of employers having to pay damages for their failures with regard to pension provision; in the US, for example, employers have paid out over $350 million in legal settlements since 2009;
- There is a risk that future regulators and ministers may decide that today’s employers should have gone beyond the basic legal minimum requirements around automatic enrolment, especially if some workers end up getting poor outcomes;
- Courts may decide, as they have done in other pensions-related legislation, that employers have an ‘implied duty’ to look after their workers and that a minimalist approach to automatic enrolment legislation could fall foul of this test;
The paper highlights several areas where employers should not regard automatic enrolment as a ‘once and done’ activity. These include:
a) Regularly reviewing an automatic enrolment scheme, not just at the point of choosing a scheme but on an ongoing basis; this is especially important given that the whole process of automatic enrolment relies on ‘inertia’ with employees having little or no active involvement in choosing the provider, choosing the default investment strategy etc.; an employer who persisted with a pension provider that was not providing good value to members could face some searching questions in years to come;
b) Ensuring that the scheme chosen provides tax relief to all employees, including those earning below the tax threshold; employers who choose a scheme which delivers tax relief through the ‘net pay arrangement’ could face challenge as this excludes non-taxpayers from the benefit of tax relief;
c) Helping to protect individuals against making poor decisions; whilst employers are not under a legal duty to provide financial advice to their employees, courts have implied a duty on employers to provide information to employees about their pension rights where not doing so could lead to an individual suffering financial loss;
Commenting, Steve Webb, Director of Policy at Royal London said: It is very tempting for employers thinking that once they have chosen a pension scheme and enrolled the right workers they can largely forget about automatic enrolment. This paper is a wake-up call, especially for larger employers, which suggests that this might be a high-risk strategy. Many larger employers do already take pensions seriously and go well beyond their statutory minimum duties. But all employers should be reviewing their automatic enrolment arrangements on a regular basis to ensure that it remains fit for purpose.
Francois Barker, Partner and Head of Pensions at Eversheds Sutherland said: In the US, employers have had to pay out over $350m in damages in connection with shortcomings in workplace retirement plans. Whilst there is not an exact parallel with the UK, the law tends to evolve over time and the courts may decide in the future that employers – particularly large ones – should have done more than the bare minimum required under the automatic enrolment rules. If firms want to insulate themselves as far as possible against future regulatory action, there are a number of key areas they should address on an ongoing basis.
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