Increasing reports of employers coaxing staff to opt out of pensions

1 Aug 2018 By Hayley Kirton

Significant rise in complaints last year, with watchdog called on to ‘punish’ wrongdoers

The number of complaints received by the pensions watchdog accusing employers of attempting to get staff to opt out of saving for retirement increased by 68 per cent last year, new figures have unveiled.

The data, obtained through a freedom of information (FOI) request, revealed The Pensions Regulator (TPR) received 64 reports between 1 April 2017 and 31 March 2018 alleging employers had attempted to induce employees to opt out of their pension scheme, up from  38 in the year before. 

The 2017-18 figures also represented a fivefold increase from the 12 complaints received about such allegations in 2015-16.

It is an offence for employers to attempt to induce an employee who is eligible to be enrolled into a workplace pension to opt out, regardless of whether that inducement is successful.

Calling the rising number of reports “concerning”, Charles Cotton, senior performance and reward adviser at the CIPD, said: “This can have a detrimental impact on what kind of retirement these individuals will enjoy, as well as undercutting those organisations complying with the regulations. Law-abiding firms will want to see those companies deliberately flouting the law pursued by TPR and punished.”

Kate Smith, head of pensions at Aegon, told People Management the increase in recent years was most likely caused by smaller, and perhaps less pensions-savvy, employers being the most recent to auto-enrol. When auto-enrolment started rolling out in October 2012, it began with the employers with the largest numbers of staff. 

“[These smaller employers] are probably less likely to have an adviser, they are more likely to talk [directly] to their employees,” she said.

This April, the minimum contribution rates under pensions auto-enrolment rose from 2 per cent to 5 per cent, with the proportion employers are obligated to contribute increasing from 1 per cent to 2 per cent. Smith said it would be “interesting” to see if this increase affected the number of reports of possible inducement, but added: “I think the TPR has been coming off much stronger [as a regulator].” 

Meanwhile, Steve Webb, director of policy at Royal London and former pensions minister told People Management that while it was “worrying” some employees may have been pressured to opt out, 114 reports was a tiny amount compared to the total number of people who had been auto-enrolled and stayed in a scheme.

“The very low opt-out rates that we are continuing to see suggests that there is unlikely to be a general problem with employers actively encouraging opt-outs,” he added. “But it is important not to be complacent and a clear signal needs to be sent that membership of a workplace pension is a valuable employment right and that employers should not be seeking to put pressure on their staff to give up that right.”

A TPR spokesperson said no evidence existed that inducement to opt out was a “widespread” issue. “The number of whistleblowing reports we have received must be taken in the context that more than 1.3m employers have completed their declaration of compliance – almost all of them in the last three years – as automatic enrolment has expanded,” the spokesperson added.

“Nevertheless, we would encourage any workers who are not being given the pensions they are entitled to or who believe their employers are committing pensions offences to contact us and we will investigate...We will take action against employers who fail to comply with it.”

Meanwhile, data released today by the Office for National Statistics (ONS) revealed two out of five (44 per cent) employees felt their employer’s workplace pension was the safest way to save for their golden years. 

However, the research also showed a low level of awareness around auto-enrolment. Of those eligible for auto-enrolment who thought they had not yet been enrolled into a scheme, 91 per cent had been. 

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