The proposition is simple, comply or die. Most people simply regard “employer duties” as staying within what the Americans call the “safe harbour”.
This is risk-based regulation but has no idea on “growth” in terms of getting better pensions that allow people to retire in dignity, employers to refresh the workforce and the Government to privatise a large part of the benefits bill.
Compliance is the easy bit. These rules are all about administering contributions and notifying employees about auto-enrolment. Very little of the new legislation concerns the Qualifying Workplace Pensions Scheme (QWPS) into which the money goes.
Working out what “fiduciary” duties fall on employers to staff is something that most lawyers will stay well clear of. The answer to the question “what is an employer’s duty of care” is not in any rulebook.
For some employers the duties crafted by a carefully set moral compass, for others they’re not even on the agenda.
For the Pension Trustee, the duty of care runs like “Blackpool” through a little stick of Blackpool Rock.
Which is why the master trusts are in such an interesting and difficult place, especially where, as they will soon find, many participating employers have no interest in staff pensions.
We have yet to see an instance where a trustee of a master trust whistle blows on a participating employer but this will happen.
But perhaps unpaternal employers are smarter than to put their heads in a lion’s mouth.
When a trustee board is made up of the Chairman , the HRD and the FD , most employers are sanguine, but when the trustees are appointed by the Government, or include union officials, it’s not hard to see why many employers are wary and prefer to work with contract-based solutions.
Whether insurers running contract based schemes see themselves as whistle-blowing is hard to work out. Theoretically they are the trustee of the personal pension but the entity of a group personal pension is difficult even when it becomes a QWPS.
It’s encouraging to hear David Barral of Aviva promising not to allow inappropriate Aviva legacy schemes, to be used as QWPS together with statements that “adviser charging needs to help members”. Likewise, the slogan of L & G “a force for good” seems to be being born out beyond the headline. I do not get the impression that the insurers, the ABI or indeed the IMA want anything but good workplace pensions.
Nevertheless, there still appears an opportunity for employers who want to drive a coach and horses through good practice , to do so. And to do so without the insurer providing the pension even know it’s happening.
The intermediation of the employer/provider relationship (despite being generally a very good thing), has created further potential for bad practice
Don’t get me going on bad practice.. what is good practice?
In my view, the employer has a fiduciary duty to its staff and it’s a simple one. It is to stage auto-enrolment correcly, meet the minimum contribution obligations once it has staged and to do what it can to maximise the outcomes of their qualifying workplace pension scheme.
I am speaking as a shareholder and a Director and as an employee.
That’s good practice but I recognise it is not the law. In the rest of this blog I will put forward a commercial argument for the adoption of “good practice” whether it is a duty or not.
Why employers should adopt a voluntary duty of care to manage staff pensions.
There is a clear distinction between the long-term investment of monies for an employee’s retirement and the management of “in service” employee benefit programs.
QWPS will see most growth beyond the employee’s service or the employer’s funding. Employee career and retirement plans are “our business” and the value of a QWPS, which delivers deferred pay, should not be determined by the short-term plans of the employer. As my colleague Derek Benstead wrote on the PlayPen this week..
The value of the work I did for my employer in 2012 is unaffected by whether I am still working for the employer in 2022. The pay I get for 2012 should not be affected by whether I am still in the same employment in 2022.
Few employers will benefit from the outcomes of the QWPS the set up for their staff. Most of the staff they enrol between 2013 -17 will not be in their service when the benefits are drawn. Ironically, the benefit of a well established pot is more likely to be enjoyed by an ex-employee and his final employer – who may be a competitor!
But of course the opposite is true. If employers are looking to use QWPS to help the ageing parts of their workforce into semi or total retirement, they will depend on the efforts of other companies to “do the right thing”.
So in the long-term , employers have a general duty of care which extends beyond their immediate business plans .
Employers do not have fourty year business plans but employees do. We call those plans “careers“. Most employers get this and that is why most employers so far have chosen to embrace QWPS and Auto-Enrolment, delight in low opt-out rates or (for hybrids like Morrisons) high opt-in rates, encourage voluntary personal contributions, manage workplace education schemes and make sure the schemes they offer benefit the members.
And because these employers have set such a great example, the way is clear for the second wave of employees to follow suit. The agenda for the next five years has been set by the likes of Marks & Spencer, Asda, Co-op, Sainsburys, Morrisons , the big retail banks and large but lesser known names like ISS.
We should be applauding these large companies for trail-blazing for the rest. We should not forget that they have spent millions of pounds complying with complex legislation which is now being simplified so the same costs are not being born by their smaller competitors.
Nor should we forget that organisations like Tesco with their 350,000 staff , have gone way beyond the minimum obligations placed upon them. Be assured, your months and years at Tesco are earning you good pension rights which are unlikely to be replicated elsewhere, I don’t hear too many people pointing this out at Tesco AGMs and not enough recognition of its efforts from people like me.
And if I was asked to employ someone in their fifties who had spent 30 years in a Tesco staff pension scheme, I would be more than interested. It is in my interests as an employer to employ people who have the options to retire when they want to and are not using my company to give them long-term financial help when they can no longer help me.
The reality is that Britain needs good workplace pensions. Now these QWPS form such a part of our post retirement plans, what other companies do about pension planning is our business. If we see poor practice, then we should shudder , not just because it might be the dry rot that might spread to other schemes but because we might find our retirement blighted should we work where the poor practice started or spread.
Firms who think that their obligation to staff, cease at the point that their staff leave employment are being both short-sighted and uncommercial. They risk becoming pension pariahs. Similarly employers that wilfully persist in operating QWPS that are sub-optimal in terms of their value for their money are being uncommercial and short-sighted.
Employees will wake up in time, (hopefully in quick time) to what makes for good. It is not hard to communicate a high charge from a low one and demonstrate the cost of high charges.
Years to retirement
If AMC is 0.48% rather than 0.9%, fund is bigger by …
If AMC is 0.3% rather than 0.9%, fund is bigger by …
* for NEST just deduct a straight 1.8% off the % improvement to take into account the contribution levy.
When that simple message gets through, and Martin Lewis has only to publish these numbers on www.moneysavingexpert.com for that to happen, employers will get it and so will their staff.
They may not get the subtleties between good and not so good in investment, they may not appreciate the value of compliant administration or of proper security on their assets but they will work out that high charging pensions are bad news.
So employers need to exercise that duty of care, at the very least, to protect themselves against criticism from their staff and their staff’s representatives.
- They need to be mindful that they are not acting alone but are apart of a huge system of employers all operating auto-enrolment and QWPS and that staff will move to them as well as from them.
- They need to be aware that where they are wilfully acting best practice, Steve Webb has stated he will name and shame.
- They need to know that we already have and are likely to see a lot more “Quality Testing” which will need them to “comply or explain” to the Regulator why their scheme does not meet certain standards.
Most of all, employers should be aware that there are schemes they can engage with (NEST, NOW, People’s Pension, Pensions Trust as well as one large insurer) which will guarantee their currents staff terms of 0.5% of less without recourse to rubbish investments strategies or active member discounts.
There they sit, the fridge freezer, hob, dishwasher and tumble dryer – all beautiful and all affordable. All we need now is a good showroom and some good plumbing. (this ad sponsored by www.pensionplaypen.com )
The employer has never had it so good, it is now the job of people like me to make sure that they make use of the opportunities available to exercise their unspoken, unwritten but obvious obligations to their staff to do what they can to maximise the outcomes of their qualifying workplace pension schemes.
- Give a straight red to active member discounts (henrytapper.com)
- “What’s expensive for a pension these days?” (henrytapper.com)
- Tomorrow’s problems today..the OFT on pensions (henrytapper.com)
- “Stick or twist” for the lifecos. (henrytapper.com)
- Better-buying makes auto-enrolment work (henrytapper.com)
- TUC demands employers meet auto-enrolment costs (xlntelecom.co.uk)
- Would you take your chance on a mastertrust? (henrytapper.com)
- Time to look at VAT on pension costs (henrytapper.com)
- Yesterday these were tomorrow’s problems.. (henrytapper.com)
- So what’s a good DC pension – Mr Webb? (henrytapper.com)