Factfile: Compulsory scheme membership

1  The Pickering report (see Smith gives Pickering report cool reception) recommends that the law be changed to allow employers to make membership of their occupational scheme a condition of employment. It also proposes that employees could be compelled to join any employer-sponsored scheme into which the employer is paying a minimum contribution of, say, 4%.

2  Employers had previously been permitted to make membership of occupational schemes compulsory, but this was outlawed from 6 April 1988 by s.15 of the Social Security Act 1986. The requirement for membership to be voluntary is now contained in s.160 of the Pension Schemes Act 1993.

3  The current prohibition on compulsory membership does not apply to schemes that offer death-in-service benefits only, provided that members are not required to contribute. This provision is contained in reg. 3 of the Pension Schemes (Voluntary Contributions Requirements and Voluntary and Compulsory Membership) Regulations 1987.

4  Originally it was proposed in the draft Regulations that employers that offered contracted-out salary-related schemes could require employees to join unless they had contracted out via a personal pension. This provision was dropped as it was thought employers would not want to apply such a rule.

5  The National Association of Pension Funds (NAPF) 1987 survey shows that 82% of occupational schemes with 91% of the membership covered by the survey were compulsory at that time.

6  Under the current law it is not unlawful to enter employees into membership automatically when they take up employment or become eligible, and to require the member specifically to opt out.

7  According to the 2001 NAPF survey, 45% of final-salary schemes in the private sector, 75% of such schemes in the public sector and 41% of money-purchase schemes do operate an automatic membership policy.

8  The same survey shows that 92% of employees eligible for final-salary schemes remain as members where an automatic entry policy is operated, but only 77% join where membership is not automatic. (The difference is even greater for money-purchase schemes.)

9  According to Employers' pension provision 2000, a survey produced for the Department for Work and Pensions, 33% of employees belong to group personal pensions receiving a minimum contribution of under 4%; 36% receive more than that (these schemes could be made compulsory under the Pickering proposal); but 31% receive a fixed monetary amount which it is impossible to assess.

10  The same survey found that while 72% of employees work for an employer making pension provision, only 37% are actually members.