Employers who carry out the bare minimum duties in regard to their auto-enrolment (AE) risk being sued if members fail to receive good outcomes, according to Royal London.
Legislation requires employers to do little more than enrol and re-enrol eligible staff into a pension scheme, pay contributions, and notify workers of their rights.
However, it seems appropriate that employers should regularly review their AE provision, ensure they provide tax relief to all employees, and provide additional information to employees about their pension rights as well as encouraging them to take financial advice, whether this is offered within the work place or not.
An article written in AE and the law – how far do employers’ duties extend? Suggested that failing to do any of this leaves employers potentially open to legal action. This is because courts have previously decided there is an “implied duty” of confidence and trust between employers and employees, and minimalist compliance could “fall foul of this test”.
Additionally, it is possible regulators and the government may in future decide current requirements are not good enough, especially if members receive poor outcomes.
For this reason, employers should be wary of feeling that they have complied with the requirements because they have an AE scheme in place, they need to protect themselves against such risks by having procedures in place to carry out reviews.
Royal London director of policy and former pensions minister Sir Steve Webb said the paper was a “wake-up call” for employers to do more.
“It is very tempting for employers thinking that once they have chosen a pension scheme and enrolled the right workers, they can largely forget about AE,” he said.
“Many larger employers do already take pensions seriously and go well beyond their statutory minimum duties. But all employers should be reviewing their AE arrangements on a regular basis to ensure that it remains fit-for-purpose.”
They could do this by undertaking additional due diligence when it comes to selecting plans, ensuring the default fund is suitable for their member cohort in terms of investment options and costs and charges, and alerting their members to the fact that minimum contributions may not result in a pot large enough for retirement.
They should also consider moving their scheme to a “relief at source” tax relief arrangement to ensure non-taxpayers benefit, and boost record-keeping standards.
In the US, employers have had to pay out $350m in damages in connection with shortcomings in workplace retirement plans. While this may be the US, the law tends to evolve over time and there is every possibility that the courts may decide in the future that employers – particularly large ones – should have done more than the bare minimum required under the AE rules.
It would be prudent for employers to consider the future possibility of complaints when employees retire. There is complete ignorance about the amount of money that needs to be saved into a pension to provide a reasonable income in retirement. The danger with workplace pensions is that employees may think that as they have a pension they will be ok, without considering the tiny amounts that are actually being put away for this purpose. Better to have an employer that says “we’re helping you towards your retirement income by paying into a scheme with you, but you should get advice on how much you need to save to ensure that income will be sufficient for your requirements.”
Also the employer that does check each year that the current scheme and default funds are appropriate, or gets an independent financial adviser to do this for them, will be in a far better position to defend themselves in the need arises.
As their accountant making your employer clients aware of this can only enhance how they think of you and your service.
The Moneytree Corporation Limited Registered in England number: 4350758. Registered Address: 14 Gipsy Lane, Warminster, BA12 9LR. Savvy Financial Planning is the trading name of The MoneyTree Corporation Limited which is authorised and regulated by the Financial Conduct Authority. The Financial Conduct Authority does not regulate taxation and trust advice. We are entered on the FCA Register No: 504571 at www.fca.gov.uk/register. The information contained within the website is subject to the UK regulatory regime and is therefore primarily targeted at customers in the UK. The value of investments and income can go down as well as up and you may not get back the full amount invested. Should you have cause to complain, and you are not satisfied with our response to your complaint, you may be able to refer it to the Financial Ombudsman Service, which can be contacted as follows: The Financial Ombudsman Service, Exchange Tower, London, E14 9SR. Tel: 0800 023 4567 or 0300 123 9123, www.financial-ombudsman.org.uk.
Savvy Financial Planning, Hinton Business Park, Tarrant Hinton, Blandford Forum, Dorset, DT11 8JF