Employers are at risk of legal action from their workers due to auto-enrolment policies because the legislation excludes certain groups of people, which could mean claims of indirect discrimination under the Equality Act.
Financial services company Defaqto is raising awareness of this situation, with experts agreeing there are grounds for legal action.
Introduced in 2010, the Equality Act legally protects people from discrimination in the workplace and in wider society, and covers areas such as gender, age and health.
The current thresholds for auto-enrolment, introduced in 2012, mean only workers older than 22 and earning above £10,000 have to be automatically enroled into a defined contribution (DC) scheme by their employers.
Agnes Fletcher, an independent expert on equality, and former independent reviewer of the Disability Committee of the Equality and Human Rights Commission, told FTAdviser that “if people have been treated less favourably than others, on grounds of various issues, they could have a claim for illegal discrimination against their employer or pension provider” due to auto-enrolment".
She added: “Large pension providers, big employers, big organisations, they have been on this issue for many many years.
“But there is a whole new round of business owners for whom the provision of a pension hasn't been a top priority for them, so it is their responsibility, the legal duty lies with them to ensure that whatever scheme they introduce has no bias towards their employees.”
According to Defaqto, which published recently a guide on auto-enrolment for advisers with Aviva, there are four areas where auto-enrolment can breach the Equality Act, with the main ones being salary and age.
It is possible employees working in part-time and low-paid roles might consider that they have been indirectly discriminated against if they are not enrolled into their employer’s workplace pension scheme on the same terms as other employees.
Richard Hulbert, insight analyst for wealth at Defaqto, said that according to data from the Office for National Statistics (ONS), employees in these positions will be disproportionately female and/or disabled.
Indirect discrimination can also be claimed by the higher paid, since employers only have to consider salaries up to £45,000 to calculate their pension contributions.
Mr Hulbert said: “Someone on a £45,000 salary and someone on £50,000 will receive the same payment into their pension scheme, but what that means is that from a percentage perspective, the person on the highest salary gets a lower percentage going into his pension.”
On age, employers only have to enrol those between 22 years old and state pension age.
Defaqto said: “If two employees are doing the same job, it seems appropriate to pay them the same remuneration”.
Mr Hulbert argued: “It would only take one or two of those [workers] to get together, and then we get a class action of indirect discrimination against their employer.”
The safest way of making sure that the Equality Act isn’t breached is for employers to enrol all their workers in a DC scheme, independently of age or salary, he added.
He noted, however, that the Department for Work and Pensions (DWP) is introducing changes to the auto-enrolment rules which will diminish potential Equality Act breaches.
In December, the government announced that it will make changes to the age for auto-enrolment of workers into workplace pension schemes from 22 to 18-years-old, and changing the way pension contributions are calculated, starting from the first pound earned, instead of the £10,000 lower earnings limit.
Mr Hulbert said: “DWP are potentially changing their laws in 2020 to remove this issue, but that means that everybody between now and 2020 are being disadvantaged.”
A spokesperson at the DWP said: "All employers should be aware of their responsibilities under the Equality Act 2010 and our workplace pension reforms fully take these into account.
“Automatic enrolment has been a great success, with male and female participation rates in the private sector having equalised. In addition, younger workers and low earners have seen the greatest increase in pension participation since the introduction of the reforms.”
Pension schemes are off the hook on this matter, since they don’t use the auto-enrolment minimum parameters as their criteria, and have no restrictions to whom can be enroled, he noted.
Graham Peacock, managing director of workplace pension provider Salvus Master Trust, argued that “auto-enrolment legislation discriminates against the low-paid, the young, part-time workers, the gig economy, women - all of the political hot potatoes”.
He said: “We don't discriminate. We ask every employer that signs up with us would you like to pay for your entitled workers, and a lot of them say yes.
“Because that is an equality and discrimination matter - saying that you can join the scheme, but neither the government or your employer will pay in.”
Ms Fletcher argued that any claims brought forward on this matter will be against the company, and not the government.
She said: “If an individual employer is offering a pension scheme that discriminates against a particular individual, then the individual would have a claim against that employer. It wouldn't be an issue of auto-enrolment generally.”
Ferdinand Lovett, associate director at law firm Sackers, agreed with this view.
He said: “The auto-enrolment framework is a legislation that is permissive, in the sense that sets up minimum requirements, but gives employers absolute flexibility to implement arrangements as they see fit.
“People sometimes forget that anyone from age 16 to 74, as long as they are earning the required earnings, can ask to opt in. If they do this, the employer has to make a contribution for them.”
Defaqto is also advocating that companies could be in breach of the Equality Act if they don’t offer a relief at source scheme to their workers – without it, low paid earners are denied 20 per cent tax relief added to their pensions.
Last, if employers fail to offer a Sharia investment option this can result in Muslim staff feeling excluded from the process and therefore more likely to opt out of pension saving, Defaqto said.
However, correcting this shouldn’t be a problem, since 80 per cent of the schemes in the UK market have such an investment option.
According to Martin Bamford, chartered financial planner for Surrey-based Informed Choice, "discrimination is a potential minefield for employers and professional advice should be taken to avoid future claims, especially when you have members of your workforce who don’t automatically qualify for a workplace pension".
He said: "We work with an external HR professional to consider these issues, keeping our employment practices in line with the law and accepted best practice."
maria.espadinha@ft.com
