Should workplace pensions have a duty of candour?

Duty of candour

We seem to have learned nothing from the Office of Fair Trading report on workplace pensions.

In case you’ve forgotten, the OFT reported they’d never encountered such  poor purchasing as with employers purchasing pensions for their staff.

What has been the industry’s response to this astonishing statement?

The ABI has put in place a protracted review of its member’s legacy products and agreed to the establishment of Independent Governance Commissions to manage the behaviour of insurers and a charge cap on the defaults of workplace pensions.

Meanwhile , every week heralds the arrival of a new workplace pension solution launched to meet the needs of some supposedly heterogeneous group of employers.

These new arrangements are typically master trusts, with us having to take it on trust that they are doing more than paying lip-service to the quality of member outcomes. They neatly by-pass the scrutiny of IGCs and the legacy review

Pardon my bluntness, but the proliferation of snake-oil solutions being peddled as Qualifying Workplace Pension Schemes suggests that the OFT report might as well have been a marketing document to the dubious of intent.

Is anybody doing due diligence?

Already two qualifying workplace pensions – those of Friendly and Source Pensions have had to be pulled from the shelves, both propositions suffering collateral damage from poor governance.

Since the new breed of master trust can be set up in days and operate without the consumer protections of FSCS and of EU Solvency regulations, they are an open invitation to any organisation to plunder to make hay.

The one serious governance structure on the managers of a master trust – adherence to the master trust assurance framework – is not even compulsory.

Have we learned nothing from the last thirty years of financial services mis-selling? Every problem has resulted from poor purchasing and poor controls on those in the sales process.

The only difference with auto-enrolment is  that the mis-selling will be on an industrial scale.

Unless, that is, swift and decisive action is taken to create an obligation on employers and those who advise them , to conduct some due diligence on the products being purchased on behalf of staff.

Should we not expect, any employers committing a major chunk of payroll, to at least be able to articulate where the money is going – and why?

I appreciate that employer duties are multifarious, but can any be more important than selecting a workplace pension saving scheme for their workers?

I am amazed that this issue is not being taken more seriously.

The charge cap of 0.75% is a token measure that can be circumvented with ease, simply by charging the member through the net asset value of the fund. Until a “total cost” measure is established, those who wish to fund their enterprises through member borne charges, can do so with impunity.

Some may think that the answer is more regulation. But layers of regulation , patching systemic weaknesses, lead to complexities which are in nobody’s interest.

What is needed is a willingness among employers and their advisers to pay attention to the pension they have purchased, not just at point of sale, but going forward. This willingness needs to become part of the DNA of employment, not just another employer duty.

Do I think this is likely? There are some 1.3m employers choosing their workplace pensions. The vast majority fit the OFT’s description. Most have no workplace pension for their staff, many have no pension plan for the bosses.

In order for these bosses to take their workplace pension seriously, there will need to be a major  campaign from Government to raise awareness;- and a sea-change in the way that advisers provide help to small businesses.

It is unlikely that the majority of employers will engage for themselves. They are more likely to engage through a trade association or adviser, or accountant or even their payroll software.

Delivering the three essential ingredients to good decision making (engagement- education and empowerment) means working with these employers in a radically different way to what has happened so far.

Conventional advisory models were simply not built for this kind of market. Unless the means of delivery and the price of advice radically changes, most employers will continue to sleepwalk into mis-purchasing. This may be very good news (in the short term) for those exploiting employer weakness, but it will be very bad news (in the medium to long term) for the auto-enrolment project.

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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10 Responses to Should workplace pensions have a duty of candour?

  1. Tim Harrop-Griffiths says:

    Friendly Pensions are now GenLife and Source seem to be operating as normal – where does your “pulled from the shelves” comment come from Henry?

  2. henry tapper says:

    Source are reconfiguring their proposition to meet HMRC requirements, Friendly have very properly migrated to GenLife.

    We wish both well!

  3. Gerry Flynn says:

    Henry
    What about the situation where a employer may wish to go to the market place to find a suitable scheme for its employees but their hands are tied because they are in a industry wide scheme and if they do not use the existing DC scheme they are potential hit with a Section 75?

    • henry tapper says:

      As in pension trust or MMOPF?

      We hope these organisations will raise their game and offer good quality workplace schemes to rival the best

      • Gerry Flynn says:

        Henry
        Neither, I have to be careful here, lets say they are NFP’s and they are members of a industry wide scheme but they would not be offering their existing employees who were not members of the DB/Care scheme access to that scheme for AE. Those employees who qualified for AE would only be offered a DC scheme which the employer the had no choice in selecting.

        I hope that is clear.

        Gerry

  4. henry tapper says:

    Gerry , you may be aware that Ensign are now offering their own master trust. We will see how this stacks up and what, if anything, it can do on S75 issues. I suspect that the answer is not much as – unlike SmarterPensions, it is not part of the DB multi-employer trust.

  5. Gerry Flynn says:

    Henry

    If it all went pair shaped for the employer down the line because the DC fund did not perform and they were challenged by employees what could they say/do? I see lots of work in future for our friends from the legal profession.

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