Pension governance is not a box-ticking exercise

George Will, an American political commentator and Pulitzer Prize winner, said it best. “The nice part about being a pessimist is that you are constantly being either proven right or pleasantly surprised.”

Well, I don’t think I’m a pessimist by nature… But about four months ago, I did issue a warning and it is now showing some early signs of coming true.

Let’s recap.

Back in July, I noted that across the pond, there was a strong trend of employees suing their companies because of the way they handled their pensions - charging oversize fees for their retirement plans, for example, or offering more expensive funds than necessary.

And the companies are losing. Over the last decade, American companies have paid out nearly $400 million to staff disgruntled over their pensions.

It seemed reasonable to assume, I wrote back then, that the same trend will eventually make its way to our shores. If companies do not do everything in their power to administer their pension funds properly, they will end up in litigation.

So you can imagine my reaction when I read recently that The Pensions Regulator has secured its very first conviction for non-compliance with auto-enrolment.

The Magistrate’s Court found that a bus company from Manchester deliberately failed to enroll 32 staff members in a pension scheme. The owner will have a criminal record, with sentencing due next month. And the Regulator is pursuing £14,400 in civil fines, too.

Granted, the legal action was taken by The Pensions Regulator, not by the employees directly. But the implication is clear. The courts are starting to take companies’ responsibility to their employees around pensions very seriously.

And this opens the door to action from employees, too.

Don’t just take my word for it. Recently, Sir Steve Webb – Pensions Minister in David Cameron’s coalition government – commented on a policy paper issued by his employer Royal London in conjunction with Eversheds Sutherland, which echoed my warning from July.

Citing the American payouts, he said that boards that treat auto-enrolment like a box-ticking exercise are liable to face legal action from workers.

“This is not hole in the corner stuff – if thousands of people get a poor outcome you could be talking serious money,” he told the Daily Telegraph.

Just because you’re fulfilling your minimum duties legally may not make you immune from prosecution in the future, either.

“Politicians and regulators have a knack of coming back years after the event and deciding that what was deemed ‘good enough’ at the time was not ‘good enough’ in hindsight,” he warned.

Companies must do more, much more, to ensure their staff get the best pension outcomes, constantly reviewing their arrangements to ensure that they are fit-for-purpose and help employees maximise the tax relief available.

Your company should not take these words lightly. Given the American example, you can’t afford to.

When it comes to the way you handle your employees’ pensions, you must always, much like Caesar’s wife, be above suspicion. Or in future years, we’ll be facing a slew of lawsuits.

This is one area where I really don’t want to be proven right. I’d much rather be pleasantly surprised.

Steve Butler is chief executive of Punter Southall Aspire.

This article was provided by Punter Southall Aspire.