There’s as much risk of pension mis-buying as pension mis-selling #cpconf

mr pension 2

The Payroll World Client Payroll Conference was a cracker. It set the agenda for payroll bureaux engaging with auto-enrolment and progressed my thinking (and I suspect that of most of my fellow delegates).

I don’t praise a conference lightly, especially one that costs me money to attend. On this occasion the money was well spent and I hope that Payroll World repeat the dose next year, by when we will have over 150,000 more employers auto-enrolling and almost as many new pension schemes into which money will be flowing.

Coming to Payroll as a pension person I can see why I am distrusted! If there is a pecking order in the professional services hierarchy, payroll bureaux are close to the bottom, something that Brian Stenhouse of Armstrong Watson was keen to explain. But, as Brian pointed out, the duties of payroll now stretch beyond paying people, they extend to reporting on tax (RTI), managing benefits and of course making sure that auto-enrolment works.

On this last item, there was much debate. While IFAs , benefit consultants and middleware contractors can come and go, payroll is always the last line of defence, they cannot opt-out.

As I mentioned at Payroll World’s Spring Conference, there ought to be a major transfer of value to payroll as befits the increasing responsibilities payroll is taking on, this may not have happened yet but with good advocates, such as those I meet at the Payroll 50, this may change.

But payroll managers, including agents, need to get smarter about how they operate. In particular they need to learn not to get dumped on with impossible tasks that bring them no reward but plenty of risk.

To my surprise (and delight), both the plenary and stream sessions I attended focussed on unwanted risk and in particular the risk of being responsible for choosing the pension. We could have called the conference “The Payroll strikes back”.

The Regulator attended and was clear. It is part of the employer’s duties to choose a workplace pension for its staff. The Regulator is for increasing choice and in particular informed choice. In my dealings with the Regulator it has become clear that it is against the imposition of default pension choices of any description , whether those choices are imposed by financial advisers, accountants or by payroll software providers (via auto-enrolment hubs).

The bureaux managers I spoke to, who will be crucial to the success of auto-enrolment (v2.0), were in no mood to be dumped on as the “default adviser”. If the proverbial hits the fan in years to come, they want proper protection from blame and why not.

Just as some providers will not accept contributions until it is clear that members have been told about auto-enrolment, so payroll should not pay contributions until it is clear why the employer has chosen it’s provider.

This is absolutely necessary to indemnify payroll who should not be responsible for this decision, nor the reputational risk that goes with it.

In our pension world we have got used to this process. You cannot take a transfer from one pension scheme to another without taking advice. The new annuity freedoms, ushered in by the budget will almost certainly only be available with advice. Employers who take decisions on workplace pensions without advice cannot subsequently point the finger elsewhere.

Payroll bureaux and in house payroll managers should be asking why they are being asked to use the provider that they are. If they have not been consulted in the decision , they need to have this documented. If they are consulted then they should be speaking with their payroll software suppliers about the compatibility of the pension provider.

Above all, there must be documentation which ensures there is a proper audit trail for the future. Without it, payroll may find themselves exposed as “responsible for the pension decision” simply because they were responsible for everything else.

It is a popular myth that there is nowhere for companies to get advice on the choice of workplace pensions, a simple google search will prove this. It is another popular myth that this advice should be free. It shouldn’t be.

We in pensions know what mis-selling looks like and we aren’t going there again. People in payroll should be aware that there is risk in mis-buying. You shouldn’t be going there either!

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to There’s as much risk of pension mis-buying as pension mis-selling #cpconf

  1. I totally agree Henry.
    The risks involved will surely come back to haunt those unwary people, who, with the best intentions, leave themselves open to questions as to why a particular scheme was selected?
    We receive many requests to advocate a particular ‘free’ scheme, which on closer inspection has the maximum charge allowed, and which in the long run will be very expensive to the client’s employees.
    Many IFA’S will be in the same position, and will not be able to offer an affordable solution to most Micro’s, due to the risk of fallout in the future.
    Why was that particular scheme recommended over another one?
    Where is the research and proof of due diligence?
    Many IFA’s do not want to get involved with Micro’s, as the fees needed to be charged to cover the risks and work involved will stop most Employers from using them and they will naturally turn to their Accountant or Payroll provider, who will be in the same position.
    Which provider should I choose?
    Do I want the liability of advising my clients, for little reward, but with a high risk of compensation claims in the future?
    There is no statute of limitations on compensation claims as many a retired Adviser will tell you.
    This is why Alexander House has chosen, not to select any particular provider, but rather use the Pension PlayPen system for our clients and explain how Accountants and Payroll Providers can work with us to deliver a low cost solution to their clients.
    The failure to assess the risks of giving advice, without a process will keep many a professional awake at night, or at least it should!

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