In America the business of providing staff with a retirement benefits plan (known as 401k) is taken very seriously. Employers have fiduciary responsibility to the participants and to the plan. That means that if employers do not take due care in the choice and governance of the plan they set up for their staff, they are liable to civil prosecution.
If you press this link you can read about the “excessive” law suits taken out against employers and their advisers resulting from their alleged poor behavior
The employer’s duty in choosing a pension plan under the Pension Regulator’s rules is a lot less clear, employers have a duty to choose a workplace pension for their staff but (unlike in America) there is no obligation on employers to choose carefully.
This is causing providers, business advisers and most importantly employers some concern. The past twenty years has seen us lurch from one mis-selling scandal to another. Pension Transfers -Endowments – PPI and Interest rate swaps have all been subject to class actions and massive retrospective penalties on those found wanting in due diligence.
I have been in financial services for 33 years and seen a large amount of bad practice. Even where good advice was given, I have seen action taken against the adviser for not properly documenting what was advised and why. We all remember from our maths exams, it’s not just the answer but your working that gets you full marks.
So when my firm, First Actuarial, were thinking how we could help small businesses through auto-enrolment, providing help on how to choose a pension and an audit trail that showed the due diligence taken, was our number one priority.
Unfortunately, the way we do this for our large employers involves many thousands of pounds worth of our time and considerable investment from our client, we knew we could not demand this from small employers. So we decided to build everything we knew about choosing a pension into a computer program, powered by an algorithm and supported by actuarial certification which we could give to employers who followed the steps to choosing a pension properly.
We called this service Pension PlayPen because we liked the child-like simplicity of the name. Www.pensionplaypen.com has gone on to help many thousands of employers choose a pension.
Recently, we were approached by the office of the Shadow Pension Minister, Alex Cunningham. He had heard of the work we do with small employers through bureaux, accountants and advisers. He has asked us to lay before parliament an amendment to the Pensions Schemes Bill, due to be enacted this April.
Here is the amendment we have submitted to the Committee ratifying the bill.
Employers have a fiduciary duty and a duty of care to members t0 ensure the master trust of their choice meets the needs of their staff
There is of course one easy way to avoid the risk of retrospective litigation and that’s to insure. A minimal investment in due diligence using our site ensures not just peace of mind, but the satisfaction that your choice meets the needs of your staff.
You may feel that this is overly onerous on employers and could give rise to just the kind of litigation happening in the USA. But laying down the law on what should be done is better than letting bad things happen and punishing them retrospectively. If it had been clear to the banks before they sold PPI what the rules were, we would never have had the scandal we did.