Pension opt-out incentives to become illegal

25/06/2008

Employers will be prosecuted for encouraging their staff to opt out of a workplace pension if new pension rules are approved, the government said today.

The rules, which will become law if proposed changes to the Pensions Bill go through, could mean businesses offering incentives such as higher salaries or one-off bonuses to avoid paying the employer minimum contribution of 3% would be breaking the law.

The new legislation would also cover circumstances where employers force their workers to opt out, leaving the individuals free to decide if they want to be a member of a workplace pension scheme.

Due to come into force in 2012, the changes to the Pensions Bill will mean employers will have to automatically enrol their staff in a workplace pension scheme – if they don’t, the Pensions Regulator will have the power to impose penalties, forcing employers into paying any arrears of contributions due.

Minister for pensions reform Mike O’Brien said allowing people to build up the savings they need to meet their retirement expectations is important.

“Decisions on whether or not to save in a workplace pension need to be taken free of any unfair pressure. That’s why we want to prevent employers from trying to pressurise staff or tempt them with ‘live for today’ inducements into opting out of pension saving.

“While it may seem attractive in the short term to accept an inducement to opt out, when people reach retirement with a lower pension, they’re likely to regret taking the easy option,” he said.