Employment Eye – March 2025

Welcome to March’s edition of Employment Eye. In this edition we have included an employment law round-up as well as key dates for your diary, but first, we wanted to highlight three areas which we think will be significant for pensions in 2025 and beyond.

Pensions – 3 things to look out for in 2025

Auto enrolment and salary sacrifice – Frenemies

The Pensions Regulator has repeatedly said that ensuring that employers are complying with automatic enrolment is one of its key aims.  Compliance is an ongoing obligation, rather than a “complete it and forget it” task. It is important that employees are provided with the correct information from the outset of their employment, and there are a number of other aspects to auto enrolment which employers need to be aware of, and on top of, to ensure they are compliant.

In particular, it is increasingly common for employers to offer a salary sacrifice arrangement as part of employees’ membership of their pension scheme, due to the National Insurance contributions savings.  However, the requirement that employees should not be put into a salary sacrifice arrangement without their consent does not sit easily with the Pensions Regulator’s guidance which states that an employer cannot ask employees to do anything to be enrolled into a pension scheme. HMRC guidance on salary sacrifice does provide a way for employers to operate salary sacrifice without express consent of the employees, but certain procedural steps must be taken.  The use of salary sacrifice may not be appropriate for employees who have variable pay (for example, those on low or zero-hours contracts) or for those who may earn close to the minimum wage.

Using salary sacrifice and automatic enrolment together therefore needs to be thought through carefully. 

Contracting-Out: The fallout from the Virgin Media case

The recent case of Virgin Media Ltd v NTL Pension Trustees II Ltd [2024] raises issues for trustees and sponsoring employers of “contracted-out” defined benefit pension schemes. 

Schemes which were contracted-out agreed that they would provide equivalent benefits to the top-up element of the state pension in exchange for lower National Insurance contributions. In relation to the issues raised by this case the relevant period is 6 April 1997 to 6 April 2013. 

As part of the contracting-out process, those schemes were required to provide a minimum level of benefits to members.  The outcome of the case is that, when making changes to the scheme between 6 April 1997 and April 2013, the trustees were required to seek confirmation in writing from the pension scheme actuary that the scheme would continue to provide the minimum benefits required by legislation.  The court indicated that the requirement for actuarial confirmation applied to both past and future service rights, and also covered changes that were broadly positive for the scheme members, as well as those which had an adverse effect.  Any relevant amendments which were made without such actuarial confirmation would potentially be void. This could materially impact the potential liabilities of a defined benefit pension scheme.

The result of this case is that schemes which were contracted out for this period may want to consider, and take further advice on, whether they should be reviewing documents which amended the scheme during the period in question, and whether any further action is necessary.  Sponsoring employers of pension schemes will need to be involved in these discussions as, increasingly, company auditors are raising this as an issue in light of the potential for the employer to be exposed to higher pensions liabilities.

The pensions industry has made numerous requests for the government to intervene and introduce legislation that will lessen the impact of the case, but to date there has been no definitive statements by the government on legislation.  A further court judgement exploring the issues is expected later this year.

Surpluses – A nice problem to have?

As part of the government’s mission to “secure growth”, the Chancellor recently announced proposals to improve the ability of pension scheme trustees and employers to release surplus from an overfunded pension scheme. The released surplus would apparently be available for the employer to invest in their core business and/or be used to provide additional benefits to the pension scheme members.

Alongside the Mansion House proposals to create pensions megafunds, it is clear that the government believes significant value is currently trapped in the UK pensions industry, and that unlocking it could provide a significant boost to the UK economy.  

Without any details of the conditions and requirements which will apply to enable surplus to be unlocked, it is difficult to guess how many schemes will be able to take advantage of this new option, and how quickly.  There will also be lots of questions about how pension scheme trustees make themselves comfortable with cash leaving their pension scheme, and convince themselves that it is in the best interests of their scheme.  Many trustees will not need to have very long memories to remember when a large number of schemes had significant deficits, and the key question trustees were asking themselves then was “where is the money going to come from?” rather than “what shall we do with all this money?”…

Employment law 2025 – keeping you and your organisation up to date

There have been a fair few notable developments throughout January and February, below is a short recap as well as details of forthcoming developments over the next couple of months..  

2025 Recap

There have been a fair few notable developments throughout January and February, below is a short recap as well as details of forthcoming developments over the next couple of months..  

• 20 January - The Trade Union and Labour Relations (Consolidation) Act 1992 (Amendment of Schedule A2) Order 2024 came into force. The Act permits employment tribunals to uplift protective award payments by up to 25% for collective consultation breaches where the employer has failed to follow the new statutory Code of practice on dismissal and re-engagement.
• 31 January - Acas published new guidance on neurodiversity at work. The guidance explains the meaning of neurodiversity as well as providing examples of the different types of neurodivergence. It also promotes the benefits of an inclusive workplace and includes a guide for employers dealing with performance issues.
• Easton v Secretary of State for the Home Department (Border Force) - the EAT held that it was fair to dismiss an employee that had failed to disclose a previous gross misconduct dismissal.
• Higgs v Farmor’s School and others - the Court of Appeal upheld the Claimant’s appeal and found that her dismissal amounted to unlawful discrimination based on her protected philosophical beliefs. Please see our article for further details. 
• 5 March - Employment Rights Bill Amendment Paper and Government consultation responses were published. Please see our article for details on the proposed amendments. 
• 11 and 12 March - the Employment Rights Bill had its House of Commons report stage and third reading stage. The Government amendments are expected to be passed at the report stage (and some of the non-Government amendments may also progress). Once the third reading is complete, the Bill will pass to the House of Lords for further scrutiny. For an explanation of the Government and non-Government amendments, please see our recent Spotlight post. 

Dates for your diary

• April statutory increases

*Such as statutory maternity and paternity pay

The qualifying thresholds for family leave payments will increase from £123 to £125 per week, with the exception of maternity allowance which will remain at £30 per week. 

Other rates and limits increases (e.g. the statutory cap on a week’s pay used for calculating payments such as the basic award for unfair dismissal and statutory redundancy pay) will take effect in April 2025 and are likely to be announced in early 2025.

• On 6 April 2025 - the Neonatal Care (Leave and Pay) Act 2023 (and the associated regulations) will come into force. The Act provides for the right to statutory neonatal care leave and pay.  

To receive our weekly employment law update ‘In the Spotlight’ please follow Bevan Brittan on LinkedIn. 

If you would like further information on any of the topics discussed in this article, please contact a member of the Employment, Pensions & Immigration department who will be happy to help.