Pension opt-out inducements could 'undermine' auto-enrolment, says minister

Baroness Altmann was speaking to the Financial Times about reports that an NHS Trust was offering newly-qualified 'Band 5' nurses the option of a higher salary if they did not join the NHS pension scheme (registration required).

The Oxleas NHS Foundation Trust's 'Oxleas Plus supplement option' is aimed at nurses who would otherwise have signed up to work through nursing agencies in exchange for "considerably more in take home pay ... at the expense of other benefits the NHS provides such as pension, training supervision and career development", according to an advertisement on its website.

The offer consists of "a greatly enhanced rate of pay", but would mean that the nurse would not be a member of the NHS pension scheme.

"We will instead be paying you directly the money that we would have paid into the NHS pension scheme on your behalf," Oxleas said in the job advertisement.

"Apart from not having an NHS pension, there are no other differences with a standard NHS job. You will have the same entitlements to annual leave, sick pay, training etc. You can change your mind between the two pay offers at any time," it said.

Oxleas NHS Foundation Trust usually contributes 14% of staff salaries to the NHS Pension Scheme, according to information on its website.

The Financial Times reported this week that the NHS Pensions Board, which is a government-appointed body responsible for holding the administration of the NHS Pension Schemes to account, was considering whether to refer Oxleas to the Pensions Regulator on the grounds that the deal potentially breached the automatic enrolment rules (registration required). Baroness Altmann has since confirmed that the Department of Work and Pensions (DWP) is investigating the reports, according to the paper.

"[Automatic enrolment] relies on as many people as possible building up private pensions to supplement the base level of state support," the minister told the paper.

"The intention of the auto enrolment programme is clear - employers must make it as easy as possible for staff to save in a pension at work, with the help of their employer, and there are clear legal requirements that the employer must not entice them to opt out," she said.

Auto-enrolment began for the largest employers on 1 October 2012, and 'staging dates' by which smaller companies will have to begin the process run until 2018. Under the programme, employers will have a legal duty to automatically enrol workers into a pension scheme which meets certain minimum requirements, and will be legally obliged to make contributions towards the pensions of those that do not opt out of the scheme.

NHS trusts use the NHS Pension Scheme for auto-enrolment purposes, but the scheme is considerably more generous than the minimum levels set out in the legislation. The current minimum contribution is 2% of earnings, of which 1% must come from the employer; and is due to rise to 8%, of which 3% must come from the employer, by October 2018.

Oxleas is also offering new joiners the option to join the government-backed National Employment Savings Trust (NEST) pension scheme instead of the NHS Pension Scheme, and to receive the difference in contributions as salary. The trust has received approval from the Pensions Regulator for the arrangements as it will not be making "direct" savings as a result, according to the Financial Times' reports.

Pensions expert Hayley Goldstone of Pinsent Masons, the law firm behind Out-Law.com, said that the bad publicity surrounding the case showed the need to handle pension incentives exercises "carefully".

"Tempting as it may seem to give employees an incentive to opt-out of auto-enrolment, this is a breach of the law with serious potential consequences which could include action by the Pensions Regulator and employees bringing complaints to the Pension Ombudsman," she said. "The defence costs are likely to be higher than the cost of compliance."

"The moral of this story is wider than just auto-enrolment. Incentives exercises, even where they are permitted, need to be handled carefully to maintain relations with employees, avoid costly and time-consuming complaints and even litigation," she said.