Choosing between occupational and workplace pension schemesFriday, July 1st, 2011
DWP response to “call for evidence” warns against choosing an automatic enrolment pension scheme based on assumptions that short service rules will not be changed.
On 31 January 2011, the Department for Work and Pensions (DWP) published a “call for evidence” document to explore the regulatory differences between occupational and workplace personal pensions. It considered the significant differences that exist between the two types of pension scheme, in particular the short service refund rules that are permitted by occupational schemes.
The document expressed concerns that short service refunds may be seen by employers, especially those with high labour turnover, as a way of managing costs and reducing the administrative burdens of managing small pension rights. That could prompt employers to put employees into schemes offering short service refunds as a way of reducing their future pension contributions costs. Employees who change employers frequently may not, as a result, build up entitlements to pension benefits – contrary to the policy behind automatic enrolment.
On 27 June, the DWP published its initial response to the call for evidence and, as expected, it concentrated on the issue of short service refunds. A detailed response is promised for the Autumn but, in the meantime, employers are encouraged not to make their decisions about the type of scheme to offer on the assumption that short service rules will continue to exist in their current form.