It’s my most used snip in 15 years writing this blog and I wish it wasn’t.
When Steve Webb turned down the AE three’s suggestion that employers could chose a workplace pension from a safe harbour , he made it clear that they could do so without advice.
Trustees can’t take life-changing decisions for their members without advice , information , guidance and advice to workplace savers is all regulated.
So what risks do employers run that make a “safe harbour” inappropriate?
The phrase is regularly used in the USA and applies to the Erisa legislation that protects employers from being sued by members who feel short-changed by their workplace savings plan (401K).
The Erisa safe harbour applies to electronic communications to saves about their plans and provides an indemnity to the employer for what happens to their staff’s savings (provided certain processes are followed).
We have yet to see any evidence that employees in the UK are prepared to sue their employer. That to a large extent is down to there not being information to compare how their pension outcome stacks up. But the direction of UK regulation is towards such information becoming available.
The FCA now requires the governance committees of contract based workplace pensions to show comparisons between the outcomes of saving into a provider’s workplace pension and a comparable master trust . The new VFM framework which the Pension Regulator will oversee could make league tables as much a reality in the UK as they are in Australia.
Small wonder that UK lawyers try to protect those involved in decisions on what an employee sees and invests in cannot create a future liability. Switch on daytime television to see how much time and money is spent on class actions launched on the anticipation of future claims. Claimants are reminded that they are only a click away from compensation
A click away from education
UK Employers should not fear an employee benefit turning into a legal battle. Instead of clamping down on comparative information, the regulators are looking to improve employer knowledge and understanding of what they have set up for their staff as a workplace pension.
The plan is to show each employer three simple tests which of a workplace pension that can demonstrate if and how much value their staff are getting for their money.
Employers can choose to act on this information or ignore it, but ignoring it may be fraught with peril. If an employee or their representative (adviser/union.lawyer), discovers that an employer has had due warning that a provider has been failing -it could be the worst for that employer.
If on the other hand, an employer is in a position to understand the tests and act upon them , then there is upside. Without the need to take advice and with the help of the information available to them from the VFM framework, they can reasonably hope to take sensible decisions on behalf of their staff.
If the education on value is properly framed, we should start seeing more employers making decisions on the basis of value rather than price. Many will seek financial advice but its possible to see employers making choices based on information explained by accountants and other business advisers including their bank.
It will be interesting to see how Cushon, who now have access to over a million small businesses , persuade those employers to review workplace pensions and switch to them.
Why TPR must now focus on “Employer Knowledge and Understanding”.
Government has now landed on the two barriers to their improving member outcomes from workplace pensions.
- Failure to get employers interested in the workplace pension
- Failure to get employers turned on to value rather than price.
To get over these barriers, we need to make it easy for employers to engage and learn.
We have the opportunity to do this, if we implement the value for money framework properly. That’s a big “if” and it will only be when we start taking VFM as seriously as Consumer Duty, that we will get there.
The prize is massive. Trillions of pounds are tied up in workplace pensions and even marginal improvement’s in net performance can lead to huge value creation for savers. If those gains can be achieved while improving sustainability , society and governance, then better still.
