New legal duties are being introduced from October 2012 that require employers to enroll eligible workers automatically into a pension scheme and pay minimum employer contributions.

Here we focus on reviewing contracts of employment and benefit arrangements for existing staff and new joiners.

Qualifying schemes
Many employers will already have for their workers pension provisions that match or exceed the minimum requirements contained in the automatic enrolment duties. Where an employer chooses to use an existing qualifying scheme to meet these requirements, those workers who are already members of the scheme need only receive general information about it, and those workers who are eligible and not already members of it will be automatically enrolled on to it.

In the absence of a qualifying pension scheme, an employer can amend any existing scheme so that it does qualify, or arrange for enrolment in an alternative qualifying scheme. Employers should check existing schemes and contracts in case changes need to be made and pensions or employment consultation is required.

Consultation
Under pensions legislation, if an employer wishes to make certain changes to existing pension arrangements, such as reducing employer contributions or increasing member contributions, it should consult for at least 60 days before making those changes to the scheme. In addition, an employer may need the agreement of pension trustees before making changes to an occupational scheme.

Whether further consultation with the workforce is required will depend on the precise wording of employment contracts. The employer may be able to make the changes simply by notifying those affected, if the contract contains a provision to change existing pension arrangements. However, specific advice should be obtained to ensure any flexibility clause is wide enough to cover the circumstances. In the absence of a clear right to vary pension terms and deduct employee contributions, the employer will need to obtain employee consent to the change, or use the more challenging route of terminating and re-engaging those affected to implement it. But this carries with it the risk of unfair dismissal claims.

All staff approach
Some employers are choosing to contractually enrol all staff into a qualifying scheme in advance of their staging date including, for the sake of simplicity, workers who would be ineligible for auto enrolment under the legislation. Employers taking this approach should review and, where necessary, amend existing contracts so that the organisation has a right to enrol relevant workers into a qualifying scheme, deduct contributions from the worker’s pay, and pass on the worker’s personal data to the employer’s pension scheme. This way, all staff are treated as active members from the staging date and the employer has reduced administrative duties.

Employers should also take this opportunity to review any contracts that currently provide an enhanced rate of pay or benefits to workers who do not join a pension scheme. If organisations do not vary such terms before their staging date, and the worker is deemed an eligible jobholder for auto-enrolment purposes, the employer will have to auto-enrol the worker and make contributions based on the higher rate of pay. In addition, the arrangement is likely to be seen as an inducement to get the worker to opt-out of automatic enrolment and expose the employer to enforcement action from the pensions regulator.

New joiners
Recruitment procedures and job offer documents should also be reviewed in light of the new worker protection provisions that will accompany the automatic enrolment rules. In particular, those involved in recruitment should be made aware of the new ‘prohibited recruitment conduct’ provisions, which prevent employers making job offers conditional on a person opting out of pensions, and from asking any questions that suggest a person’s success is dependent on opting out. Likewise, a new joiner cannot be forced to sign up to a salary sacrifice arrangement before being auto-enrolled. These principles apply to all candidates, even if they would not be an eligible jobholder on their start date.

Similarly, employers must not take steps that could be considered an inducement to opt-out. Any flexible benefits packages that allow workers to select a lower rate of pension contributions should be reviewed and brought in to line with the statutory requirements, to avoid any suggestion that the employer has induced new recruits to contribute below the minimum level or opt-out completely from pensions saving.


Teresa Dolan is an employment partner at Eversheds LLP