We need more than a ‘pin-stickers guide to workplace pensions’


Steve Bee once told me that all workplace pensions are the same.  In the context of the conversation (getting small employers to choose the right one), I knew what he meant, it is as hard for small employers to pick a winning pension provider as for me to pick the winner of the grand national.

The point of pension governance is not to guarantee winners but to reduce the chance of your horse falling and ensuring you get a run for your money. That may sound brutal, but it is clear to me that there will be market failures in the workplace pension and the first thing we can hope for is that we have no fatalities.

That is why it is important that we have the FCA and PFA ensuring that the insurance companies participating in the workplace are solvent and why large parts of the Pension Schemes Bill 2016 were given over to giving powers to the Pensions Regulator to oversee the running of trust based workplace pensions (most especially multi-employer master-trusts).

But to continue the horse racing analogy, most punters want more than a horse that makes it to the finishing line, they want that ‘run for their money,’ the elusive hope – that their horse will make it to the winners’ enclosure rather than sloping back to the stables an also-ran.

what responsibility should be placed on the army of intermediaries that stand between him and the management of his money.

Not all horses can be winners every race, but over the course of a horse’s career, you’d hope he or she would spend some time as a success. So with workplace pensions, we cannot expect our ‘Workie’ to be number one every time , we can expect it to be a consistent performer. That is what we pay our providers for. That is how we measure value for the money we put to keeping our funds in training.

Ok, so I’ve pushed this racing conceit as far as it can go. The matter arising is just who the average Joe is relying on for his information and what responsibility should be placed on the army of intermediaries that stand between him and the management of his money.

Despite the thousands of pages that now sit on the Pensions Regulator’s website, there is little consensus on the fiduciary obligation. The FCA’s main thrust at present is to create sufficient disclosures to ensure people can make informed decisions. The FCA define the people who should be in the know as institutional investors, the Asset Management Market Study tells us an institutional investor is ˜An investing legal entity which pools money from various sources to make investments.”

That definition could apply as much to an employer as to an asset manager or pension provider and that is the problem. The democratisation of pensions brought about by auto-enrolment has brought over one million new employers into the equation. Each has had, as part of the employer duties, the obligation to choose a workplace pensions. But it is unclear what that choice leads to by way of further obligations.

At one extreme, an employer might be considered to have had a duty of care towards its staff. This implies some kind of responsibility to ensure that bad things don’t happen and that the employer uses best endeavours to ensure outcomes of all the saving are as good as possible. This definition was trialled by the Labour Party in a draft amendment to the Pension Schemes Bill but rejected by the Government on the grounds that provided the employer chose a qualifying workplace pension with due consideration to the guidance on the Pensions Regulator’s website, it could feel satisfied it had done its duty.

At the other extreme is Steve Bee’s assertion that all workplace pensions are the same and that no amount of pension governance can reduce the chances of failure or improve the chance of success. Is there an implied obligation of good faith?

We have two legal avenues which can help us. The first concerns the implied obligation of good faith from employer to employee. For this, I turn to a much quoted statement in a judgement by  Sir Nicolas Browne-Wilkinson VC  in 1991 on the Imperial Tobacco pension dispute In every contract of employment there is an implied term: ‘That the employers will not, without reasonable and proper cause, conduct themselves in a manner calculated or likely to destroy or seriously damage the relationship of confidence and trust between employer and employee;’ Woods v WM Car Services (Peterborough) Ltd [1981] ICR 666, 670, approved by the Court of Appeal in Lewis v Motorworld Garages Ltd [1986] ICR 157.

I will call this implied term ‘the implied obligation of good faith.’  In my judgment, that obligation of an employer applies as much to the exercise of his rights and powers under a pension scheme as they do to the other rights and powers of an employer. Say, in purported exercise of its right to give or withhold consent, the company were to say, capriciously, that it would consent to an increase in the pension benefits of members of union A but not of the members of union B. In my judgment, the members of union B would have a good claim in contract for breach of the implied obligation of good faith: see Mihlenstedt v Barclays Bank International Ltd [1989] IRLR 522, 525, 531, paras 12, 64 and 70.

In my judgment, it is not necessary to found such a claim in contract alone. Construed against the background of the contract of employment, in my judgment the pension trust deed and rules themselves are to be taken as being impliedly subject to the limitation that the rights and powers of the company can only be exercised in accordance with the implied obligation of good faith.

The judgement has been heavily relied upon in recent judgements concerning IBM and the BBC and is relevant here.

Does the employer have a duty to provide staff with pension information?

Again, I have to play the barrack-room lawyer as precious little has been said on this subject (so far).

But it is likely, as the balances of workplace pension pots start to exceed the cost of the cars of those who own them (a generally accepted measure of engagement!) that people who have been saving, will want to know a little about where their money is invested.

The case law surrounding the employer’s obligations in this respect centres on a judgement made in favour of a certain Dr Scally. The key principles of the Scally judgement have been laid out for us by Eversheds (who have asked me to point out that this is not a legal opinion)

  • In Scally v Southern Health and Social Services Board (1991), the House of Lords held that an employer has an implied contractual duty to take reasonable steps to inform an employee of a contractual term in order for them to take advantage of it where:
  • the terms of the contract have not been negotiated with the individual but result from negotiation with a representative body or are otherwise incorporated by reference
  • the particular term in question makes available a valuable right contingent upon the individual taking action to avail himself of its benefit, and
  • the employee cannot, in all the circumstances, reasonably be expected to be aware of the term unless it is drawn to his attention

Dr Scally was disadvantaged by not being able to make pension decisions because his employer did not give him the basis on which to take the decision.

Picking winners.
Clearly employers should not be held responsible for the member outcome –  that is why we have not established workplace pensions as a defined benefit. But equally clearly (to me), there is an implied obligation on employers to do their best. There is also a clear duty on employers to make available relevant information for staff.

We are woefully lacking in the information we need to decide whether the workplace pension in which we are investing is going to be a winner.

The Government are taking steps to ensure that proper disclosures are made which enable that information to be available.

However, it is one thing to disclose, it is another to get those disclosures noticed. Greater clarity is needed to ensure that people can pay attention to their pension.

Worth reading if you want more on this;
Employer’s duty to provide information to employees about pensions.
So who IS accountable for your pension returns?
Why employers must understand the value for money of their workplace pension


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11 years providing financial advice to individuals directly and through employers. 14 years within insurers working with advisers to provide better DC and DB outcomes. 25 years left to make a difference!

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