Employers warned about risks of "minimal compliance" with automatic enrolment duties
Monday, 13 November 2017 09:04
Global legal practice Eversheds Sutherland and mutual insurer Royal
London are warning Britain’s employers to beware ‘minimal
compliance’ with legislation on automatic enrolment into workplace
pensions. 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,
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Global legal practice Eversheds Sutherland and mutual insurer Royal
London are warning Britain’s employers to beware ‘minimal
compliance’ with legislation on automatic enrolment into workplace
pensions. 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, , 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.’
** ENDS **
Note to editors: ‘Automatic Enrolment and the Law – How far
do employers’ duties go?’ is available to download
from www.royallondon.com/policy-papers<http://www.royallondon.com/policy-papers>
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