Auto-enrolment: firms getting opt-outs wrong, says expert

The procedural side of auto-enrolment will in many cases be outsourced to third parties, with provision of the opt-out form part of their services. However, the law clearly states that opt out forms must come from the pension scheme, according to pensions law expert Tom Barton.

Auto-enrolment will become mandatory for companies in a staged process beginning with the largest employers on 1 October. It is a process by which workers are automatically enrolled in a pension scheme unless they opt out of it.

The opt out process is closely governed by the law, which dictates the form that opt-out should take; the timing of it, and the process it follows. It dictates that employees must obtain their opt-out form not from the employer but from the pension scheme itself.

"Third party auto-enrolment solutions offered by employee benefit consultants and payroll providers generally expect to perform all of these processes," said Barton. "But if they provide the opt out form while acting  on behalf of the employer then this is a breach of the auto-enrolment legislation."

"This is a serious breach, too, because it goes completely against the grain of the policy, which is that jobholders should get hold of the opt out form from the scheme so that they do not feel pressurised by their employer about opting out."

The difficulty is arising even though large employers have just weeks before they must have schemes and systems in place. Barton said that the task is significant.

"Auto-enrolment compliance involves checking and monitoring of age and earnings of workers; categorising workers; issuing information to different categories; offering the opportunity to opt out of pensions, and, for those who did not meet the criteria to be auto-enrolled, the opportunity to opt-in," he said. "This is all very process driven and lends itself to automated IT solutions."

"But there are all sorts of pitfalls with opt out arrangements alone," said Barton. "If you outsource the job of auto-enrolment it's important to outsource the risk which goes with it. Otherwise employers could end up on the hook for the failures of their third party suppliers."