Auto-enrolment lawsuits beckon for advisers

Employers and financial advisers could find themselves facing legal action in several years time because of the decisions they are taking now over auto-enrolment, a pensions lawyer has warned.

In January the auto-enrolment process ramps up ten-fold, with an average of 100,000 employers reaching their staging date each quarter from the start of next year.

From 2017 it has been claimed this could reach 200,000 each quarter.

However, as employers struggle to reach their deadlines Tristan Mander, head of pensions at Newcastle-based Ward Hadaway, warned of large numbers of law suits from disgruntled employees questioning the decisions made on their behalf.

He said: “I do feel that a lot of employers will find employees coming back to them asking why they chose a particular pension scheme and they will have no answer.

“It may be that employers find themselves believing they did enough but finding the regulatory goalposts change yet again.

“The employer may well try to sue the financial adviser, if it is sued by its employees”.

However, he said if the financial adviser properly limited its remit, made these limits clear to its client and advised competently within those limits, the adviser should be safe.

Mr Mander said the problem would be exacerbated by what he called a “capacity crunch” over the coming months.

He said: “The number of companies going through the staging process vastly outnumbers the number of potential advisers for them.”

Concerns over the auto-enrolment have led to the government scaling back some of its upcoming reforms - including auto-escalation, which would see contributions increased.

Morten Nilsson, chief executive of workplace provider Now: Pensions, warned that some employers had started to “drag their feet” over auto-enrolment and said employees would get a better result if their employer took more time over the decision.

He said: “Owners of smaller firms inevitably wear many hats and auto-enrolment can come low on the priority list.

“But, like it or not, auto-enrolment cannot be ignored and leaving it to the last minute inevitably results in more stress and a more limited choice of pension providers.”

In 1996 the US Supreme Court backed a complaint by Unisys Corp employees, in which they claimed the company had made bad investments for two of its pension funds.

Under the auto-enrolment rules, employers have a duty to ensure best outcomes for their employees but Mr Mander said this is wide-ranging and ill-defined.

He said the financial adviser has a duty to provide the best possible advice to the employer when it comes to choosing a scheme but added that this is not an FCA-regulated activity.