It is important that employers take time to consider the various pension options before choosing a pension scheme for their employees. A lack of care or thought when making critical pension decisions may have a negative effect on employers in the future. This could happen when disgruntled employees start taking class action against their employers for lack of time dedicated to pension decisions.
The Pensions Bill 2016-17 acknowledges that the employer has little incentive to pick a pension scheme that offers the best benefits for their employees. Although amendments to the bill have been proposed to rectify this problem, no changes have been implemented.
Under the Pensions Act 2008, employers must ensure all eligible employees are enrolled into any qualifying automatic enrolment scheme by the company’s staging (or postponement) date. Therefore, there is no required reason why an employer would have to choose the most beneficial pension scheme. However, in order to maintain a happy workforce, the majority of employers should choose an appropriate pension scheme for their employees.
The Pensions Regulator has published a set of good governance standards. However, these standards are not mandatory and so cannot be enforced. If an employer fails to meet these recommendations then they are not at risk of being fined by The Pension Regulator. However, under case law, employers must still show they have done reasonable research when choosing a workplace pension. A major failing would be if there was no audit trail on how the scheme was chosen.
Employers should be aware of TPR’s guidance regarding choosing a scheme or they could be vulnerable to a claim from employees if the employer has breached their employment duties. Employers must take care when deciding on which workplace pension to use for automatic enrolment.
The Employer Responsibility
Each employer is responsible for choosing their workplace pension scheme and they may also be responsible for selecting the fund profiles of the pension. Employers must take responsibility for their financial company decisions. It is unclear how much liability will result as a result of poor decision making. Choosing a workplace pension that offers a financial advantages to your employees can result in a major difference to their retirement pot. If it can be proven that an employer has breached one of their employment duties and where foreseeable loss occurred from that breach, the employer may have to compensate the employee?
Employers don’t have to invest large amounts of time or money when choosing a pension scheme. You do need to make sure that you put some thought into the decision making process. Part of this will require an employer to record the steps taken to find an appropriate scheme for their employees.
This blog was written by Adam Keenan of Brightpay and published with BrightPay’s kind permission.