PI news - How firms can protect themselves with an IFA

07/04/2010

Written by Tom Davis

From 2012, almost all UK employers will have an obligation to provide an employee pension to every member of their workforce as part of the government's National Employment Savings Trust (Nest).

It is hoped the scheme will encourage Britons to begin saving for their retirement, with those who do not have access to a suitable alternative pension vehicle able to use personal accounts for their employees, the Pensions Advisory Service explains.

Any eligible employee - typically a person over 22 years old and under State Pension Age who earns over £5,000 annually, unless stated otherwise - must be auto-enrolled in the Nest.

Should a final salary scheme already be in existence at a workplace and meet set minimum standards, those employees who are a member will not need to be enrolled in the Nest scheme.

However, with the plans a number of questions have been thrown up.

As Neil Cutmore, in an article for HR Magazine explains, both Nest and employee pensions - which he notes are arguably the most valuable and expensive benefits offered to workers - can lead to dilemmas such as what advice managers can give when they are not able to inform an employee whether or not it is a good idea to join such a scheme.

Indeed, how to promote the value of workplace pensions is problematic when companies are not legally able to offer advice, such as how much should be contributed or what find choice to consider.

Mr Cutmore explains: "In fact, pretty much anything that can be taken as advice in your organisation isn't legally permissible. Providing wrong, inaccurate or even incomplete advice could mean your employees lose out and therefore your organisation maybe liable for these losses."

He continues that in the event that a default pension choice is "balanced managed" and it is argued by an employee using this that they did not receive any advice and then made a loss despite investing cautiously, then it can be difficult to recognise where the liability for this loss lies.

With all this in mind, managers are left in a position where they can only really offer the basic facts and figures in answer to any enquiries they receive, such as how much the business is paying into the scheme, the available tax relief, eligibility details and information on how to join, in addition to handing out literature from the pension provider.

However, in order to negate responsibility "entirely", Mr Cutmore explains the only solution HR staff and employers can reach for is to offer their workforce the option of taking advantage of one-to-one advice with a Financial Services Authority(FSA)-registered professional.

"The onus for the advice then rests upon the FSA-registered individual and their Professional Indemnity [PI] Insurance," he adds.

Such individuals need to have PI insurance to work in such an advisory capacity, so that, in the event their recommendations result in the person receiving them incurring a loss and making a claim, they will be covered for any expenses that befall them.

The cover is available to professionals such as independent financial advisers, mortgage and pensions brokers and solicitors, but is unlikely to protect a HR manager or business employer handing out the advice, if they lack FSA accreditation.

By opting to offer the service of an FSA-registered professional with PI insurance, managers can have the peace of mind that their employee is receiving advice on what level of pension contribution they should be making to get the retirement income they desire, therefore allowing them to make the most of the benefit being offered by their employer.

Mr Cutmore, who is an independent financial adviser at Simpler Advice, concluded that offering such a consultation is a "truly valuable employee benefit".

And as well as benefiting the employee, the employer is also likely to be seen in a positive light, while having the peace of mind that they have side-stepped what could potentially be a legal minefield

Michelle Care, HR Manger at PYV, advised: "The impact of these changes will mean every UK employer has a pivotal role. HR functions within companies should familiarise themselves ahead of time with the key measures proposed by the government. These have been designed to keep the process simple and straightforward and minimise the burden on employers during the period of adjustment."

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