Time to comply: AE starts to hit employers
Employers should be aware of new employment protection measures which came into effect for all employers regardless of their staging date from 1 July 2012. This is separate and in addition to our other client update this week on auto-enrolment.
In more detail
From October 2012 employers will be required to automatically enrol employees into a qualifying pension scheme based on their staging date. However, employers should be aware that they are all subject to other obligations connected to auto-enrolment from 1 July 2012 and regardless of their staging date. These duties comprise:
(b) a duty not to offer financial inducements to employees to opt out of a qualifying pension scheme ("financial inducements duty"); and
(c) a duty not to cause employees to suffer detrimental treatment ("detriment duty").
The Pensions Regulator's guidance suggests that an "inference" in a job advert or interview that an applicant's likely response to auto-enrolment will be taken into account as a possible example of a breach of this duty. The statutory remedy lies with the Pensions Regulator which has the power to issue compliance notices or penalty notices if it is of the opinion that the employer has breached this duty.
If an applicant asks an employer about auto-enrolment during the recruitment process it is easy to see how the employer might be caught off guard. This is especially true of employers with staging dates far off in the future. Employers should already be training their HR managers on the best way to respond to these sorts of questions. An employer who breaches the prohibited recruitment duty could be subject to a penalty of up to £5,000 depending on the number of employees in the employer's PAYE scheme.
An employer may fall foul of the financial inducements duty where an employee is induced to give up membership of a qualifying pension scheme. To be a qualifying pension scheme, minimum quality requirements must be met. For money purchase schemes, an employer has the option of self-certifying its pension scheme as meeting this standard in advance of the employer's staging date. Employers will fall within the scope of the financial inducements duty from the date of the self-certification. So they should be aware that the duty will apply before their staging date if they decide to self-certify before that date.
The Pensions Regulator's guidance suggests that all cash incentive transfer exercises could breach the financial inducements duty. This probably overstates the case. Most such exercises apply to deferred pensioners whereas the prohibition applies to financial inducements for members to cease to be active members.
Although the detriment duty also applies from 1 July 2012, we consider that in practice an employer is only likely to breach the detriment duty during the immediate run-in to auto-enrolment.
It is also worth noting that the criminal sanctions that an employer may face for not auto-enrolling its employees do not apply in relation to the three separate duties applicable from 1 July 2012.
For more information please contact David Gallagher, Partner, at Field Fisher Waterhouse LLP