How SMEs can manage pension risk




One of the least  considered rules of auto-enrolment is that it the employer who must choose the workplace pension for its staff.

It is not for the Government to make this decision, while it may be in the taxpayer’s interest for NEST’s revenues to increase , the financial liabilities of its own pension option should not be driving  choice.

It is not for intermediaries to make this decision, no matter how convenient it may be to channel employers down a well- trodden route, the convenience of one pension option to an intermediary should not be the sole determinator of  the employer’s choice.

It is the employer who chooses and – though we may not like to admit it, it is the employer’s risk if a decision goes wrong. The only way that it might not be is if an intermediary or the Government takes on that risk.

Mis-rerepresenting risk

Mitigating the risks imposed on employers through employer duties has become a big deal for the Government. The Pensions Regulator’s website is crammed with advice and tools to help employers stay on the right side of the law.

That an employer should choose a pension is – it would seem – the least of the Regulator’s worries. The DWP Director of private pension strategy has stood in front of the DWP Select Committee and told it no employer can be blamed for choosing the Government’s  pension. The Regulator’s wake up letters to employers reference NEST and the Pensions Regulator’s website remains pitifully unhelpful about options available to employers to get information on pensions. At a recent meeting , a representative of NEST , when asked for help on how to choose a pension told the questioner to use Google.

Since the Regulator is seen as authoritative, most advisers- especially those with little experience with workplace pensions – will follow the implied line – that NEST is the default scheme. If NEST is a risk-free option for advisers then presumably any actions taken against employers using NEST can be directed at tPR and forwarded to the DWP.

I have not heard that from the Regulator nor from the DWP – nor do I expect to. For that would be counter to the employer’s duty to choose. The implied position represented by the extreme bias of the DWP towards its own product is a misrepresentation of risks to advisers and employers.

The proper presentation of risk

Here is the statement that the Government has made on the advisor’s position with  regards the choice of a workplace pension.

workplace advice

This statement distinguishes between business advice on workplace pensions and advice to individuals on “what to do”.  But it does not say there is no risk to advisers in selecting workplace pensions.

We know very well from the issues surrounding pension transfers, endowment and PPI mis-selling , that the advisory risks surround the misrepresentation of risk ,not the abuse of regulatory status.

Advisers should be paid for assuming the risk of getting the advice right. That risk can be insured by insurance – and generally is. If an adviser carries out the business of helping an employer select a pension, then it should be aware of the risks of that decision going wrong- and the adviser should be properly protected.

Advisers who think that they can advise employers to choose nest with impunity , ignore the potential risks of NEST not being right for the employer.

That risk can materialise when there is an absolute failure –  if NEST were to meet catastrophic failure. This seems to me extremely unlikely.

That risk can be materialise in relative terms, when it can be proved – typically by a class action lawyer – that other options to NEST were ignored in the decision process.


Avoiding risk

The obvious steps that employers and their advisers can take to avoid the risk of getting the employer decision wrong, is to transfer that risk to an adviser both competent to  and prepared to take that risk.

Critically important in this is that the adviser is able to act with conviction. This means backing up the advice, either with free capital needed to meet any claim against it, or by having insurance to meet a claim.

If such an adviser is used, an employer can reasonably expect to have recourse to that capital or to the insurance – if it can prove that good advice has not been provided,

Not to put too fine a point on it, if an adviser providing  advice on the selection of a workplace pension has not got Professional Indemnity insurance running into millions of pounds, or recourse to such insurance, it has no business offering the advice.

Employers seeking to offload the risk of choosing a pension , should not seek to find solace in statements by Government officials, they should have a conversation with their advisers that starts “what happens if something goes wrong with the pension, how can I manage the risk of failing to properly choose a  pension.

The critical question – who will take the pension risk?

If you are an employer reading this and if you have chosen a workplace pension, you should be concerned about that choice. Even if you took the decision in an informed way, you should be concerned to confirm that decision remains correct – perhaps at the re-enrolment point. If you did not take the decision in an informed way, I urge you to review your decision and document that review.

If you are an employer who is yet to choose a workplace pension , then I suggest you get an advisor who can help you make an informed decision on the workplace pension and document that decision.

We run This is a digital service that sits within Sage and the software of other leading payroll providers. Our service is insured with a £5,000,000 PI limit and we have further cover to £2m to cover risks surrounding the technology we use.

We speak with a high degree of confidence and advise with conviction. Our service is available to advisers and employers for £199 per selection.

If you would like to see more, please watch this one minute video.



About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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