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Is this legal/allowed?

edited 30 November -1 at 12:00AM in Auto-enrolment
5 replies 2.8K views
mania112mania112 Forumite
2K posts
edited 30 November -1 at 12:00AM in Auto-enrolment
Here's a scenario:

An employer with 100 staff wants to start 'auto-enrolment' now. They intend, as a firm, to opt out of the actual auto-enrolment and start a GPP.

The question is, the firm want to offer their staff an increase in salary equal to employee contributions (1% in year 1). However, if the staff decide not to enter the company pension they will not allow them to have the payrise.

Is that allowed? (to only offer a payrise if you enter their GPP?)

Replies

  • If the employer meets all their obligations concering the new pension legislation and are not in breach of any other laws then there is nothing wrong with this.

    GPPs still need to offer autoenrollment unless they have already have quite a high minimum level of contribution, so I can't see how the employer is going to stich the employees up.
  • dunstonhdunstonh Forumite
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    They intend, as a firm, to opt out of the actual auto-enrolment and start a GPP.

    That is good. It gives more flexibility and indicates a more thoughtful employer.
    The question is, the firm want to offer their staff an increase in salary equal to employee contributions (1% in year 1). However, if the staff decide not to enter the company pension they will not allow them to have the payrise.

    No breach there. Effectively, they are not giving a payrise to anyone. The pay rise issue and auto enrolment are two different things.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • What concerns me is that they are offering a payrise. Your payrise HAS to pay your contribution to a personal pension, whether you like it or not.

    That means 'real' payrises are non-existent.

    It shows that inflation-related annual payrises are being incorrectly used. A fundamental flaw in auto-enrolment.
  • dunstonhdunstonh Forumite
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    What concerns me is that they are offering a payrise. Your payrise HAS to pay your contribution to a personal pension, whether you like it or not.

    They may be packaging it like that in a presentation but effectively they are not linked. There is no payrise but those that join the GPPP will get an employer contribution.
    It shows that inflation-related annual payrises are being incorrectly used. A fundamental flaw in auto-enrolment.

    This was always expected. Its not incorrect. Its just playing the system.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • edited 20 December 2012 at 3:39PM
    jamesdjamesd Forumite
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    edited 20 December 2012 at 3:39PM
    An employer covered by the auto-enrolment rules can't offer a pay rise only to those who opt out. But offering one only to those who opt in is permitted.

    However, there are employees who can have good reasons for opting out and it may seem unfair to them to be denied a pay rise when opting in would cost them large amounts of money, say if they were to lose a protected lifetime allowance because they made new pension contributions, or if they have opted for Flexible Drawdown and are prohibited from making more pension contributions for the rest of their life. Hopefully the employer will make exceptions for such cases.

    A firm is prohibited by law from opting out of auto-enrolment. Once their employee count reaches the threshold they are required by law to provide a compliant scheme.

    Pensions are part of employer costs. It's entirely predictable that an employer which wishes to avoid adding to their costs will limit pay increases until they have matched the extra costs of the pension provision. If they are sensible they will do this gradually so that it is not obvious to the employees that it is happening.

    There's no right to annual inflation-related pay rises, even though they happen in some firms.
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