The importance of de-risking your automatic enrolment service
13 June 2016
It is essential that all business advisers and their staff involved with auto enrolment read and understand the content of TPR’s guidance notes on 'your role in helping a client to choose a scheme'. Otherwise it is possible they could expose their own business and their clients to the risk of future claims for failure to prove a good outcome for workers’ retirement savings.
The key messages within the guidance notes and the key action business advisers should take are as follows:
Authorisation to provide advice – Advisers can provide investment advice to an employer choosing a pension scheme for automatic enrolment. However, you should only provide investment advice to an individual if you have the appropriate authorisation from the Financial Conduct Authority. If you belong to a professional body they will have a set of professional and ethical standards that you should refer to, which may include that you have sufficient knowledge and experience to offer automatic enrolment services. You should also check to make sure that any automatic enrolment work that you carry out is covered by your professional indemnity insurance.
Automatic enrolment solutions - If you offer a solution that links to one or more specific pension schemes (e.g. the payroll software is set up to link best with a specific scheme), you should make your client aware that there may be other pension schemes available that could be more appropriate for their staff. If you don’t do this, there’s a risk that you could be seen to be restricting an employer’s ability to actively choose their own pension scheme.
Write to your client’s staff - If you have agreed as part of your services to write to your client’s staff about automatic enrolment and their rights, you need to make sure you don’t inadvertently provide investment advice.
Help a client with tax relief - You may need to help an employer with how tax relief is applied to staff pension contributions. Many pension schemes only support one tax reliefmethod, so you should understand which system they use.
It is clear that the selection of an appropriate pension scheme is a key element in helping businesses comply with their new employer duties. Under the legislation employers have a duty of care to ensure the pension scheme chosen is able to deliver good outcomes for their workers’ retirement savings.
This need will not just be required at the outset but the ongoing review of pension schemes will become more important in the future as the size of the funds invested grow. Pension providers will want to compete for existing schemes by offering lower charges. There will be variances between the fund performance returns of individual pension schemes and finally service issues will lead to some employers wanting to replace providers as is already happening.
Therefore in order to de-risk the service they provide, business advisers should ensure they understand the process that needs to be followed and check that the provision of auto enrolment advice is covered under their professional indemnity cover and be prepared to help review the scheme selection on an ongoing basis.