Businesses affected by the coronavirus pandemic could encourage staff to quit their company pension scheme, the ombudsman Antony Arter has warned.
Currently, it is illegal for businesses to ask or induce employees to opt out of their workplace retirement plan after they’ve been enrolled.
But if a member of staff does opt out, the employer does not have to make contributions of at least three per cent of their pensionable pay.
Why the cause for concern with pension opt-outs?
Market research by Aviva suggests that 11 per cent of workers in the UK had responded to the pressure caused by COVID-19 to quit their pension schemes or pair back contributions.
Since 2012, more than 10.2 million workers have automatically enrolled in pension plans by more than 1.6 million employers.
Although the government has not published opt-out figures since the pandemic lockdown forced several businesses to close or restrict trading, Arter told MPs that he expected more employees to persuade staff to quit their pensions.
“There will be a lot of small employers who will turn to their employees and try and encourage them to opt out of automatic enrolment,” Arter told the work and pensions select committee.
In response to a question on how he expected the coronavirus pandemic to affect the pension sector, Arter said a small increase in companies were already holding back payments.
“There will be those employers who take the money, the contributions…and not pay them over to the pension scheme,” he said. “I have already seen a small increase (in this). I am convinced that will happen, almost certainly.”
Changes to pension rules during lockdown
In spite of Arter’s concerns, The Pensions Regulator (TPR) has already changed its rules regarding contributions. During lockdown, it gave struggling employers more time to meet scheduled pension contributions, or to pay them over a longer period.
Employers were also allowed to decrease contributions for employees saving into defined contribution pensions schemes to the statutory minimum, if the business was making more generous payments.
The latest from TPR is that it’s “closely monitoring” how employers are responding to the situation.
“While we have woven in as much flexibility as possible to help employers through these challenging times, we are clear they continue to have legal duties towards their staff, including paying the correct contributions into the pension scheme,” TPR said.
“Failing to pay across pensions contributions, or inducing staff to opt out, is against the law and we will take action, including issuing financial penalties, where employers flout the law.”
Between January and May 2020, TPR said it received just eight reports of employers inducing employees to opt out of their company pensions. These came from unnamed sources.
Employees concerned about the state of the pensions should check their pension statement regularly. Contributions shown on each payslip should be going towards your pension pot. Bear in mind there could be delays due to the time it takes to process contributions.