Pensions providers are all now well underway in their preparations for the challenges posed by auto-enrolment. Delivering cost-effective and compliant products will involve specialist legal input.
There are a large number of product types being developed to deliver auto-enrolment. You must ensure your product complies with the legislative and regulatory regime, and that any legal risks are controlled.
Workers must be allowed to opt out of scheme membership, but only after they have already joined. If workers opt-out within an initial one month period, they will be treated as though they were never a scheme member at all. You must take account of the associated costs and administrative burden of opt-out members, including:
- refunding contributions made in the initial opt-out period;
- providing information to workers in the initial opt-out period.
Many in the market are predicting that the majority of workers will not want to make any investment choices and will instead fall back on the default investment option. The design of this default is crucial. Many employers are likely to want you, the pension providers, to take on responsibility for the default and to monitor its effectiveness. How you communicate investment options to members will have a direct impact on the success of the pension scheme.
The National Employment Savings Trust (NEST) is offering a Sharia law compliant investment option aimed at Muslim workers. Some employers may ask you if you offer a similar option in order to guard against claims of discrimination on religious grounds.
Auto-enrolment will see the creation of large numbers of new pension schemes. The Pensions Regulator and employers will be taking a keen interest to see how these schemes are governed. You should therefore think about governance procedures at an early stage.