Ceri Jones discovers new rules allowing organisations to promote contract-based pensions make it easier for compulsion to be introduced
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Employers can now promote group personal pension plans and stakeholder schemes, providing they make a financial contribution and do not receive commission or a premium rebate.
The employer’s contribution to a member’s pension must be disclosed in advance of taking up a pension.
The person making the promotion must be directly employed by the employer, which must be satisfied that the person is sufficiently knowledgeable (but there are no competency guidelines).
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Since July, employers offering a group personal pension plan or a stakeholder scheme have been able to promote it to their employees on the condition that the employer makes a financial contribution to the scheme.
Previously, while sponsors of final salary schemes could promote them, contract-based group pensions were bound by The Financial Services and Markets Act 2000 and could not be promoted except by those authorised by the Financial Services Authority (FSA).
That Act has been amended primarily to level the playing field between contract-based plans and trust-based schemes, such as final salary schemes, and is a clear demonstration that the government is genuine in its desire for greater employee participation in pensions. The industry has been less than enthusiastic, however. One condition is that the person making the promotion must be directly employed by the employer; the task cannot be shipped out to a third party pensions administrator, unless of course it is FSA authorised.
A potential problem area is that the employer has a duty to ensure its representative possesses sufficient knowledge of the scheme promoted and is sufficiently competent to make the sort of promotions engaged in.
However, there are no requirements on how this competence should be measured and no accreditation or training criteria. Allison Nelson, head of marketing for group pensions at Scottish Equitable, explains: "One difficulty is around the definition of the presenter’s competence and knowledgeability, which is open to a great deal of interpretation. [But] where members are auto-enrolled, then a lot of the time the default funds will be lifestyle or balanced anyway."
For more complicated arrangements such as group self-invested personal pension (Sipps), Nelson expects an independent financial adviser (IFA) or external consultant to assume the role. "Group Sipps would be too great an ask for an ordinary employee in for HR, for instance," she says. Surprisingly, there are no restrictions on the type of advice given so, for example, it is not limited to generic advice about the advantages of having a pension.
Theoretically, the employer’s representative could provide individual employees with tailored financial advice based on their own specific circumstances. In practice, however, most are likely to play it safe and concentrate on providing generic advice.
Tom McPhail, pensions manager at IFA Hargreaves Lansdown, concludes: "It cannot be too long before the government comes back and says promotion is compulsory. There will be some merit in being seen by staff to be getting involved now."