Richard Shelton: Codes of conduct on retirement planning

The focus of The Pensions Regulator (TPR) is increasingly moving on to defined contribution (DC) pension schemes to improve member outcomes, but employers’ obligations in relation to these schemes remain limited, particularly at the point of retirement.

Auto-enrolment does not introduce any obligations on employers when members retire.

Beyond auto-enrolment, an employer’s legal obligations are limited to passing over relevant information and paying over contributions. Legal obligations relating to the retirement process fall on trustees for occupational DC schemes and insurance providers for contract-based schemes.

Similarly, TPR’s draft DC guidance and code and the Association of British Insurers’ Code of conduct on retirement choices, which came into effect on 1 March 2013, focus almost exclusively on trustees and insurance providers, respectively, although TPR has hinted that it may provide guidance aimed at employers in the future.

Employee engagement

TPR’s Enabling good member outcomes in work-based pension provision document, published in January 2011, however, emphasises the importance of employer engagement.

In the absence of a legal obligation, some employers may consider taking on a role in the retirement process as a matter of good practice. The employer also has a general duty of mutual trust and confidence toward the employee, and engagement with its DC scheme is consistent with that duty.

Once an employer knows an employee is planning to retire, it can liaise with the trustees or pensions provider and the employee to make sure the employee has key information as soon as possible, and acts on it.

Employers can also emphasise the importance of employees seeking independent financial advice, and some employers may be willing to fund this.

Governance structure

For a contract-based arrangement, greater employer engagement may also take the form of a governance structure to review, among other things, the insurance provider’s retirement process. Employers should, however, take care that this governance role does not open the way to claims from members if their retirement benefits are lower than expected.

Employers must also take care not to infringe the restrictions on providing financial advice to employees. Under the Financial Services and Markets Act 2000, a company can only provide financial advice if it is authorised to do so by the Financial Conduct Authority.

It is also unlikely that most employers will have the expertise to advise employees on retirement options. The guidance from the FCA is that if employers stick to the facts, this should minimise the risk of a retired employee blaming the employer in the future for any choices that are made at retirement.

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Any information provided should be helpful but factual, encouraging the employee to engage with the DC scheme and to seek his own financial advice.

Richard Shelton is a partner at Eversheds