A loophole in UK stakeholder law could leave employers open to legal action if the investment underperforms, consulting actuary Lane Clark & Peacock warns.
Companies offering stakeholder to employees not covered by an occupational pension cannot be held liable if the chosen provider makes poor investments or, indeed, goes bankrupt.
But Lane Clark & Peacock’s Jonathan Camfield has pointed out that the legislation does not protect companies that offer stakeholder as an additional or concurrent pension.
He said that the law in such a situation would see the employer as acting like a financial services adviser.
Cameron McKenna pensions partner Mark Grant agreed that there was a “potential liability” and that employers need to “tread carefully”.
Grant said: “It is a possible if an employer really begins endorsing a financial product, if they recommend it to their employees, then they have assumed a duty of care to those employees. There is potential liability here.
“The statutory protection does not apply here and they must not be seen to promote or endorse a particular stakeholder product. It is a bit of trap for the unwary particularly for smaller employers.”
He added: “This reinforces the fact the employers have to tread carefully and not be seen to recommend or endorse in anyway one stakeholder product over another.”
However, Hammonds Suddards Edge pensions lawyer Sasha Butterworth doubted Camfield’s claim.
Butterworth said: “It is the same as AVC. A prudent employer when choosing the funds that the AVC will go into, will have followed a logical process and taken independent financial advice.
If they have chosen the stakeholder provider in the same prudent manner and can show with some sort of a paper trail that independent financial advice was taken and that they then acted on advice, then there is not any liability on the scheme for the performance of the stakeholder provider.”
By David Rowley
Guy Opperman has rejected calls to speed up changes to auto-enrolment (AE) despite increasing pressure to boost contribution rates and overall savings pots.
Pensions and Benefits UK 2019 is delighted to announce the launch of our programme for this year, celebrating 20 years of bringing you the latest updates on all things pensions and employee benefits. Register for your place today!
PP has compiled a list of what to watch out for over the coming months.
Willis Towers Watson's LifeSight is the first master trust to be granted authorisation by The Pensions Regulator (TPR).