Oil industry face race to comply with pensions rules

Energy companies throughout Scotland have been warned that they could face penalties of up to £10,000 per day unless they comply with new pension rules being implemented over the coming months.

Pensions auto-enrolment, which places a legal obligation upon employers to enter their employees into a formal pension scheme, is subject to a phased introduction throughout 2013.

From 1 January businesses with 30,000 – 50,000 will be expected to comply. By 1 October business with only 800 employees will be caught, with the result that most of the offshore workforce will be affected before the end of 2013. Lawyers have warned that failure to prepare early could put operators at a disadvantage when it comes to negotiating with pension providers.

Mark Baker, a Pensions expert at international law firm Pinsent Masons, says that oil and gas operators also face a particular challenge in the race for compliance due to their reliance on contractors and the international nature of their workforce.

Baker says, "The government recognised the issues relating to the enrolment of offshore workers and has gone a long way towards sorting these out."

"However, there are still big question marks over the treatment of employees who are brought into the UK from other countries on short to medium term assignments, and expats and 'rotators' who are sent overseas from the UK. Whether they need to be auto-enrolled depends on the nature of their assignment, which is a difficult practical problem for oil and gas operators."

"There are also issues around contractors and whether they are truly self-employed or have employment law rights which means they too would need to be auto-enrolled."

"These are complicated issues and operators would be well-advised to deal with them head on. The later people leave it, the more time-consuming the process becomes. It also becomes harder to negotiate on management fees with pensions providers who will be well-aware of the deadlines."

Pinsent Masons says that while The Pensions Regulator has powers to levy fines of up to £10,000 a day, in reality such severe penalties are unlikely.

"There is a sliding scale of fines which depends on the size of your business. The enforcement regime needs to remain pragmatic, or the government runs the risk of creating another barrier to investment in operating in British oil and gas."

Malcolm Webb, Chief Executive of Oil and Gas UK, says:

"The oil and gas industry is by its very nature highly international and this presents many unique and complex challenges. It is vitally important that necessary compliance with the new pension arrangements do not cause any unnecessary disruption to the mobility of talent across the industry, and particularly the export of world-class knowhow into and from the UK. 

"We recognise that industry can help itself by engaging with the process sooner rather than later, and we hope that – as the rules are phased in – the Pensions Regulator will consider the unique circumstances which can face some of our members."