UK Employment Hub 

For those with an interest in pensions and, in particular, the practicalities of auto-enrolment, this week has brought some interesting suggestions on making the whole thing work a little more smoothly. One of the main stumbling blocks to truly integrated pension saving has been that the current auto-enrolment system treats workplace pensions as just that. They are something put in place by your employer and when you change employers your pension pot can be stranded or at the very least difficult to move from place to place. This is inefficient and means that many employees have small savings pots scattered around multiple employers given the way the employment market works in the real world.

Previous suggestions to deal with this have included variants of ‘pot follows member’ whereby there would be an automatic transfer when an employee changes employment, but this runs into immediate issues around member choice and comparative management charges. Why be forced to move to a scheme with a higher annual management charge or one that doesn’t offer the investment choices you want – plus costs!

The new suggestion would be to make what scheme you use for auto-enrolment an employee rather than employer decision. The employee would pick a personal pension plan (that met basic AE requirements) and the employer’s duties would be to pay into that. When the employee moves – the pension moves.

This could potentially kill two birds with one stone. However, as with most pensions issues, this is unlikely to be top of the government’s agenda and there may well be unanticipated wrinkles in the application of the proposal – for example, how will an individual employee pick a good personal pension scheme without financial advice?

Something to watch for.

Thankfully most employers are aware of their statutory obligations when advising employees of their pension benefits, especially in relation to auto enrolment or changes in the company pension scheme.

However, the recent decision of the Deputy Pensions Ombudsman in a complaint by the estate of a deceased employee against Belfast City Council (BCC) highlights that an employer’s obligations can go further than these statutory examples. The Ombudsman decided that employers are also required to make appropriate enquiries and provide sufficient advice to employees to ensure that they are able to make the best choices regarding their pension benefits.

Background

Mr Y was an employee of BCC. He was diagnosed with cancer in 2012. In May 2013, he was recommended for early retirement on grounds of permanent ill-health. His three-month notice period started on 26 May 2013 and was due to end on 17 August 2013. Unfortunately, on 24 July 2013 Mr Y was informed that his diagnosis was terminal. According to Mrs Y, she telephoned BCC the same day to tell them of Mr Y’s condition and enquired about the option of taking some of his benefits before his termination date so they could take a family holiday prior to him receiving further treatment. BCC disputed this position. They argued that Mrs Y only requested payment of a lump sum for the holiday and had never asked that Mr Y’s wider benefits be brought forward.

Mr Y died three days before the expiry of his notice period. This meant that Mrs Y was entitled to a death in service payment. This was significantly lower than the benefit for death in retirement to which she would have been entitled if Mr Y’s employment had ended.

Decision

The Ombudsman favoured Mrs Y’s account and held that BCC “ought reasonably to have enquired” as to whether Mr Y wished to waive his remaining notice period, even though Mrs Y had not specifically requested about this.

Implications for employers

Employers should be aware that pension scheme members will usually find it more cost-effective to complain to the Pensions Ombudsman than to sue in the courts. An Ombudsman may aim to reflect what is fair and reasonable in the circumstances so Ombudsman decisions are less predictable than those of the courts, which are bound by existing case law and rules of evidence.

This decision suggests a widening of the employer’s obligations to advise employees about different options available when discussing pension benefits. It means that once an employee enquires about their pension benefits or communicates a relevant change in circumstances, employers should ensure they highlight the options available – while avoiding giving unauthorised financial advice!

The decision does not sit entirely easily with previous authority that employers do not have an implied duty to warn or advise employees about the potential financial consequences of decisions affecting their pension benefits. However, the House of Lords has held that an employer could have an implied obligation to warn its employees about their pension rights if that right has not been negotiated individually or the employee cannot reasonably be expected to be aware of the particular right unless it is drawn to their attention. Given the complexity of many pension schemes, it would be unwise to rely on employees being aware of all their options.

In light of the above, employers should consider carefully what and how they communicate to their employees about pension benefits. When in doubt, they should seek professional advice to limit the risks of providing inadequate or incorrect information. A practical answer may be to adopt pre-agreed checklists to support benefit payment enquires in common situations, such as actual or expected deaths in service.

The Parental Bereavement (Leave and Pay) Act 2018 was given royal assent on 13 September 2018, having started out in July 2017 as a Private Member’s Bill subsequently supported by the government.

The Act will offer, as a day one right, two weeks’ leave to any employed parents who lose a child under the age of 18 or who suffer a stillbirth after 24 weeks of pregnancy. Employees will also be eligible for statutory bereavement pay if they meet certain criteria, including that they have been employed for at least 26 weeks, ending in the week of the child’s death, and have given the correct notice.

Bereavement leave must be taken within 56 days of the child’s death and parents who have lost more than one child will be entitled to take leave in respect of each child.

The Act provides that regulations will be made in due course, setting out how parental bereavement leave and pay will be taken, and the eligibility criteria. This will include details of notice requirements, whether leave can be taken in separate blocks and whether employees who are not the biological parent of a child (but who have been significantly involved in caring for the child, such as step-parents) will also qualify for leave and pay.

The rights provided by the Act are expected to come into force in April 2020, but this will be confirmed by the regulations.

Under current legislation, employees have the right to take a reasonable amount of unpaid time off work to make arrangements following the death of a dependant. However, the cases on this limit the amount of time off to one or two days at most, save in exceptional circumstances. The change in law is therefore the first time in the UK that specific bereavement leave has been made both a legal right for up to two weeks and paid.

Employers may already have in place a policy on bereavement. Acas has published a  guide to managing bereavement in the workplace, which is available at http://www.acas.org.uk/index.aspx?articleid=4977

After the regulations have been published, employers should consider reviewing any existing policy or putting one in place, and should ensure that managers and HR are trained on the new rules.