Choosing a workplace pension

how to choose

help of a proper firm of actuaries!

 

 

Last week, Parliament debated an amendment to the Pension Schemes Bill, suggested by the Shadow Pension Minister and quoting this blog. I am happy to have put words in Alex Cunningham’s mouth, the Government have been cavalier in its policy and is leaving employers exposed to the kind of class actions common in the USA and well known to our banks and insurers in the UK.

Employers are choosing workplace pensions like NEST without being able to give any reason why. If an IFA chose that workplace pension as a regulated activity, the IFA would have to justify the choice in a formal “reason why” letter. But if an accountant or its payroll tells an employer to use NEST or similar, because it is compliant and suits its payroll, the instruction isn’t even recorded.

What is left is a black hole of ambiguity into which employers, business advisors and even the DWP could find itself sucked. If I am sounding alarmist, it is because of the complacency of the DWP downwards

Here is the Pensions Minister, speaking from the position adopted by his department, one that he has inherited. I have written to Richard Harrison and asked him to discuss this. Whether I get the meeting or not, I want to publicly challenge what he is saying;

here is the Pension Minister’s opening gambit

I thank the hon. Gentleman for his contribution with the new clause, but I respectfully give him my opinion that he seems to be fundamentally misunderstanding the whole regulatory system of automatic enrolment.

So what is the regulatory system?

So long as an employer chooses a scheme that meets the criteria—we have been through all the criteria and the whole regulatory and legislative system is behind that—the scheme qualifies for AE. The employer —which may be a he, she or it, if it is incorporated—cannot just decide on any old scheme. There is a significant regulatory hurdle in the Bill.

The hurdle may be regulatory but jumping (or complying with) the hurdle does not mean the employer has completed its duty of care to its staff. The common law concept of duty of care is decided in a court beyond the influence of the DWP or tPR. Common law is common sense and judges are the judge of that

The employers’ duty is met by scheme choice, because that is what auto-enrolment is.

I quite agree, the choice of workplace pension scheme is at the heart of the employer’s duties. It is the decision which will have most impact on its staff’s future and getting that choice wrong has long-term consequences, much greater than the short-term aim of keeping payroll happy.

It is not like a defined-benefit type of scheme, where the employer has to ensure that the contributions are enough to be able to pay out what they are contracted to pay out in the scheme documentation. They have to make a reasonable decision based on the whole authorisation regime. I argue that asking for more would be inappropriate and burdensome for employers.

Here is where I part company with the Minister. The duty of care falling on an employer choosing a workplace pension is exactly the duty of care in meeting its defined benefit promise, it is variously called the exercise of its “best endeavours” or to use an easier phrase “to do its best”.

It may help the hon. Gentleman to see my point if he looked at the regulator’s website—he might have done so already—which has comprehensive guidance for employers.

Here the Minister loses the plot. The page an employer lands upon

choose a pension.PNG

Note that unlike the Pensions Minister, tPR does not place choosing a pension at the heart of what auto-enrolment is. Infact, employers have to navigate a complicated process to get to the screen the Pension Minister refers to.

The same goes for business advisers; choosing a pension scheme does not spring out at you on this list

choose-2

Under the new clause, a typical employer would be doing exactly what the hon. Gentleman says is inappropriate: they would basically be doing what their accountant or adviser tells them, because most employers, particularly the small ones, by definition do not have this kind of knowledge. They are not professionals in this area; there are there to run their own business.

Here I need to talk with the Pensions Minister. This is what accountants are being told by his Pensions Regulator.

choose-3

Navigate your way through these links and you come to a two page document which basically says you should make your choice based on what works for payroll. If you don’t believe me , press here

http://www.thepensionsregulator.gov.uk/docs/advisers-help-your-client-choose-a-pension-scheme.pdf

The guidance given by tPR to advisers is totally inadequate and the advice given to employers no better. Employers are being asked to choose a workplace pension based not on what is right for staff, but on what is right for payroll. Here are tPR’s key points on choosing a pension plan for your staff

choose-4

There is simply no help for employers and business advisers about the “additional help them may need”. The whole navigation is a cul-de-sac which is jammed with confused advisers and employers.

Small wonder then that Richard Harrington concludes

I do not understand, whether from a personal or a Government perspective, how asking them to do meaningful checks after they have gone with an approved and regulated scheme would add anything to the process.

If there was no help to employers beyond the Pensions Regulators website, the Pensions Minister would be right, but there is help of this kind and its available to every employer in the land for (at most) £199.

So far, http://www.pensionplaypen.com has helped over 12,000 employers to choose a workplace pension. The only time that this organisation has been mentioned in this debate has been from Alex Cunningham’s intervention.

I will challenge Richard Harrington’s question. Small employers can do meaningful checks through us and we’re backed by £8m of professional liability insurance. We’re inside Sage’s pension module and used by all the large payroll software providers.

Every week hundreds of employers choose their pensions wisely using our software. Perhaps Richard should choose a workplace pension our way – for his staff!

 

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions and tagged , , , , , , . Bookmark the permalink.

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