One in ten opt-outs point to employer influence
A concerning number of workers have said they opted out of their workplace pension scheme because their employer encouraged them to do so. Employers need to be made aware of their responsibilities under automatic enrolment and should carefully consider how conversations maybe perceived by their employees.
Research for this year’s Scottish Widows’ Workplace Pensions Report revealed some really positive insights: only 3% of people said they intend to opt-out when minimum contributions go up, fewer people are failing to save for retirement and there are clear opportunities to better engage younger workers.
But there is cause for concern after we examined the reasons people gave for opting out of their workplace pension scheme. Unsurprisingly, affordability is the most commonly cited reason, but strikingly, 9% said their employer encouraged them to opt out. This seems to be more prevalent in smaller workforces (fewer than 50 employees), where the figure rises to 14%.
The rules for employers are very clear and non-compliance can lead to fines or criminal prosecution. In fact, the notices that employees submit in the process of opting out must always include a statement explaining that employers cannot ask or force people to opt out. The smallest employers that are yet to stage should take note, as should organisations going through re-enrolment. The Pensions Regulator (TPR) has already issued over 7,000 fixed or escalating penalty notices for non-compliance with automatic enrolment rules.
There’s certainly a strong chance that some of this is unintentional – employers may not be aware that they’re dissuading members from saving for retirement. For that reason, it’s important to consider communications (conversations in particular) carefully. However employers shouldn’t shy away from talking about pensions. In addition to mandatory communications, there is a huge amount of value in providing more information on the scheme and on saving for the long-term generally. Workers will have questions too, and will expect their employer to at the very least be able to point them in the right direction.
Advisers and employers can play a big role here, whether it’s giving specific, tailored advice or guidance to individuals, or providing generic content to the whole workforce.
TPR also has guidance for employers, explaining what they can and can’t say about a pension scheme:
The recent Financial Advice Market Review recognised some employers feel it is unclear where the line is drawn between general support for employees and regulated advice, and recommended that the Financial Conduct Authority (FCA) and TPR give greater clarity on what employers can or can’t say without being subject to regulation.
While this is being developed, advisers and pension providers are well placed to help and guide employers to support their employees in the most appropriate way.
For employer use only.
Information correct as at February 2017