The shadow pension secretary Alex Cunningham has tabled an amendment to the Pension Schemes Bill which could clarify whether an employer has a duty of care in choosing a workplace pension for its staff.
There are currently over 80 class actions against employers thought to be in breach of this duty of care. (401khelpcenter.com COLLECTED WISDOM™ on Court and Legal Actions Related to Retirement Plans)
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.
We think it extremely unwise to leave it at that. Indeed any employer advised by www.pensionplaypen.com is required to state the reason for choosing its specific workplace pension before an actuarial certificate can be produced (confirming due diligence).While PPI only impacted the claimant, the use of workplace pension defaults impacts classes of employees who take the employer’s choice as in their best interests.
There are very few employers in Britain today who would not aspire to be trusted to act in the best interests of staff. It is extremely odd that employers do not consider they have a duty of care in choosing a workplace pension.We see the merit of this opposition amendment to the Pensions Schemes Bill. It is in the interests not just of staff, but of employers and intermediaries.
However, where a Government specifically lays out an employer’s duty, as with auto-enrolment, it seems reasonable to point out that the common law duty of care will form part of them. We believe that the Government has to date been negligent in not pointing this out and we wish this small but important amendment well.
The common law includes the concept of an employer’s duty of care to staff, not just for their health and safety but for their financial welfare. This duty of care forms part of a social contract, the implicit responsibilities held by individuals towards others within society. It is not a requirement that a duty of care be defined by law.
An additional worry is that employers do not see this as their choice. Too often we get answers from employers “we did what our accountants told us to”. It is as much in the interests of accountants to ensure the employer states why they have chosen their pension as it is the employer’s.
It may seem perverse for a commercial organisation to be criticising its Regulator for under-regulation, but we have been here before. The list of mis-selling scandals from pension transfers to PPI has as a common theme, a failure to anticipate the civil litigation that precedes a regulatory clampdown. Had the retail banks accepted that they were on the hook for explaining PPI (rather than defaulting clients into using it), a multi-billion pound claim would have been avoided.
We all remember from our maths exams, it’s not just the answer but your “working” that gets you full marks. But the Pension Regulator’s declaration of compliance (used by employers to certify they have completed their duties) asks only whether the employer has chosen an occupational or group personal pension scheme.
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 stated obligation on employers to choose carefully.
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.