As everyone is looking for signs of economic recovery, the Coalition to laud it and Labour to decry it as fragile, the mass of employment data emerging is coming under increasing scrutiny in the press. For example, now that the Bank of England has decided to link monetary policy to the unemployment rate, there is great interest in the rate at which unemployment falls and in assessing how accurate an indicator of economic health this statistic really is. Likewise, the use of zero hours contracts and the attraction for some employers of recruiting non-UK nationals also seem to be getting plenty of column inches.
One aspect that seems to have been overlooked so far in the debate is the impact that each of these issues has on pension saving, and the associated long-term economic consequences of these employment trends.
The reducing unemployment rate appears on the face of it to be a cause for optimism. However, it is widely suggested that more workers are feeling obliged to take part-time roles because full-time positions are not available. As well as distorting the unemployment statistics, this impacts on the pension provision for the individual. The pension entitlement will either be pro-rated to reflect the reduced hours or the individual may be ineligible for mandatory pension saving altogether if he falls below the earnings threshold for auto-enrolment.
The use of zero hours contracts, and the variable pay that results also presents a challenge for employers in terms of assessing workers’ eligibility for auto-enrolment and determining the pension contributions payable. Someone working under a zero hours contract is likely to satisfy the conditions to be a ‘worker’ for the purposes of auto-enrolment obligations, even if he may technically not be an employee, and will therefore need to be assessed to determine what employer duties, if any, apply in respect of him. This assessment may not be easy as the fluctuating earnings of a zero hours worker means that there may be no pattern as to when pension contributions are payable.
The employment of non-UK nationals again raises an auto-enrolment question. An employer needs to carry out an assessment of whether any overseas recruits are “ordinarily working in the UK under a contract of employment” to determine whether they must be auto-enrolled into a pension plan. Employers should also be wary that they do not inadvertently turn their defined benefit plans into cross-border schemes, thus subjecting them to the increased funding requirements that would then apply.
Some of the employment strategies that have evolved in these straightened economic times are creating pension compliance risks for UK businesses. To the extent they are resulting in less occupational pension saving, they also potentially storing up another economic problem for the future. We would always recommend the taking of specialist advice on these topics, whether as employer or scheme trustee. The pensions savings industry is to some extent in unknown territory here and careful navigation is required to avoid these new hazards.