Advisers to walk fine line when advising on 2012 opt-outs

The Government says advising employees to opt out of auto-enrolment will be permitted after 2012, but concedes the rules on inducements remain unclear.

Advisers attending the Corporate Adviser DC Summit quizzed David Haigh, head of workplace pension reform at the Department of Work & Pensions, over the legality of advising employees on opting out of pension schemes into which they have been automatically-enrolled.

Dick Strattan, head of employee benefits at Mercer, asked: “Are you likely to ban some of the advisers from going to employers and helping them to advise opt out on that basis? Will you lock them up for making the right decision?”

Haigh said the legislation made it illegal to offer employees inducements to opt out, but went no further than that. He added the government supported alternatives to auto-enrolment, so long as they were in employees’ best interests.

“The issue about the difference between that [advising employees on better options] and inducements is something we are looking at quite closely. We are not going to make things illegal that are a good idea, but you [advisers] need to work through things so you tread the right line and are not in breach of the rules on offering inducements,” said Haigh.

He added the government’s proposals for auto-enrolment would apply to 10 million non-saving employees in the UK, and predicted that 3 million people would choose to opt out. However, asked whether a high level of opt outs would be considered a positive, Haigh said that the government would consider auto-enrolment a success as long as it was “the right 30 per cent who opted out”.

At least 5 per cent of the workforce remains at risk of being worse off from auto-enrolment as a result of the current system of means-tested benefits, according to research from the DWP. However, Haigh said the needs of the many outweighed those of the few.