Do employers have a duty of care when choosing pensions?


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.alex-2

There are currently over 80 class actions against employers thought to be in breach of this duty of care. ( 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 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.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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8 Responses to Do employers have a duty of care when choosing pensions?

  1. Mike Lacey says:

    Another public figure not mentioning the existence of Group Personal Pensions.

    The Head of tPR was on Moneybox saturday; notably didn’t mention GPP once, not even to acknowledge their existence.

  2. STEPHEN TILEY says:

    tPR regulates trust based occupational pension schemes last time I looked (and used to list Stakeholers that were approved I think). FSA regulates GPP schemes and perhaps teh tPR guy didn’t want to step on someone else’s toes?
    As GPP providers have marketing budgets then I guess their existence is pretty well known. Many employers/employees have had bad experiences of legacy high charging GPP schemes which are often set up with early redemption costs if transferred away – perhaps they also want to be able to transfer in bulk without member consent in future – not possible with GPPs. Keep money in one scheme for purchasing power = lower costs hopefully.
    By the way, employers have a duty of care (full stop). Therefore anything which turns out seriously detrimental (that could have been avoided by reasonable care and diligence) does I suppose risk action in future by disgruntled employees or their representatives – but how likely that is – is another question. Not seen much in past when employees suffered high charges etc with Allied Crowbar etc.

  3. Mike Lacey says:

    Master Trusts have marketing budgets too. The public – including employers – will take note of what the Pensions Regulator says -“they regulate pensions, don’t they?” – and looking at their website may well only seek out Master Trusts.

  4. GPP schemes are less efficient than the big MTs and I don’t think insurers are interested in selling them for auto enrolment minimum contributions because of the onboarding costs (for small employers anyway).

    • Mike Lacey says:

      Not sure why you say they’re less efficient. There are some GPP providers who charge fees to onboard but I can’t see any problem with them wanting to remain profitable. In fact, some of the smaller MTs leave me concerned as to their financial strength and longevity. If they’re not making a profit, they may fail…

  5. henry tapper says:

    the tPR guy (Andrew Warwick-Thompson) is responsible for the choice of workplace pensions and tPR’s website does include GPPs as choices. GPPs can offer great VFM as we show on – the Pensions Schemes Bills is however about the occupational workplace pensions – especially the GPP. When you come to sign off your declaration of compliance you are asked to confirm whether you’ve bought a Master Trust of a GPP – I wonder what percentage of employers get that choice right!

  6. henry tapper says: It’s not puzzling , if you know ATW , the lamb doesn’t lie down with the lion

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