With the introduction of auto enrolment, employers of all sizes have been compelled to choose pension schemes for their staff. In doing so, they are making a financial choice that affects the long term interests of their employees.
Initially it looked as if small employers would have an easy decision, because only one pension provider (NEST) agreed to offer pensions for this market. Then, things changed. Dozens of new pension schemes sprang up. It was easy for anyone to set up a master trust and start offering workplace pensions, without needing approval from the regulators. Suddenly there were lots of pension schemes to choose from. Some were good, some were bad and others were… well, suffice it to say that one diligent pensions expert reported 19 such schemes to Action Fraud. Matters have improved since then and The Pensions Regulator will soon have new powers to regulate this type of pension scheme.
It remains up to employers to choose a scheme for their staff. I’m sure they’ll try to choose good schemes, but can they be sued if they inadvertently choose a bad pension scheme, or if they choose a good pension that doesn’t perform as well as expected?
Well, the answer is a matter of legal opinion. The Department of Work and Pensions (DWP) thought not, but this position was challenged last May by the House of Commons Work and Pensions Committee. Their report said “The Department have stated unambiguously that employers are not liable for their choice of AE pension scheme. Legal experts, however, have told us there could be grounds for legal action if employers cannot demonstrate due diligence.” The situation is explained in the written answer given to the select committee by Tristan Mander, a pensions lawyer at Ward Hadaway.
The Government’s responded to the committee’s point saying “While there is no specific provision in automatic enrolment, or wider pensions legislation to prevent a member bringing legal action against an employer as respects performance of the pension scheme, provided an employer can evidence that they have had due regard to their choice of qualifying scheme and have acted in good faith in its selection, it is difficult to envisage that someone would have a strong claim against an employer in regards to this.” I have added the emphasis because as far as I can see, this agrees with the committee’s point: employers should keep evidence of how the pension scheme was chosen. If they don’t, there is a small chance they may regret it later, when an ex-employee gets a call from a claims company, like the ones currently dealing with PPI.