Auto-enrolment lawsuits beckon for advisers
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.
A spokesman for the FCA confirmed this was the case, adding that auto-enrolment was a matter for The Pensions Regulator.
A spokesman for The Pensions Regulator said that advice to an employer on choosing a pension scheme for their staff is not regulated by the FCA but, in giving this advice the adviser will be subject to standards set by any professional body of which they are a member.
The spokesman said: “Members bear the risks of DC schemes performing poorly. Therefore it is vital that employers choose pension arrangements for their workers that are designed and managed in members’ interests.
“We urge all small employers preparing for AE to choose a high-quality large scheme such as a master trust or a group personal pension plan.
“We have published a list of schemes that have attained independent master trust assurance and that accept all types of employers. Employers who use these schemes can be confident that they are well run.”
Adviser view
Peter Chadborn, director of Essex-based Plan Money, said: “There is an obligation on employers to make pension provision where there was before and if there will be a risk of disgruntled employees it will be someone who hasn’t got as much money as they thought and is looking for someone to blame.
“I have never known an employee to question the selection of a provider, however there is a greater obligation under auto-enrolment so I think the risks to the employer and the associated adviser will be more in the way of how the options were communicated.”
