Auto-enrolment: advice for small and micro employers
When offering auto-enrolment advice, are you clear whether you are talking to your client as an employer – or as an individual?
Investment advice to an employer on selecting a workplace pension for automatic enrolment for their workers is not a regulated activity. By contrast, investment advice to an individual is regulated and should only be provided if an adviser has the appropriate FCA authorisation.
As automatic enrolment moves to small and micro employers, there are instances that could make it difficult to tell whether an employer is seeking advice as an employer or as an individual. An example of this could be where the client is themselves a potential member of the pension scheme. To mitigate the risk of inadvertently providing investment advice to an individual, the adviser may like to specify in their letter of engagement that any advice to an employer is provided to them in their capacity as an employer and not as an individual.
Business advisers can support their clients in their selection of a pension scheme by:
providing factual information. For example, an adviser could identify the pension providers available to the employer and provide a comparison of the investment funds, charges and services applicable to the schemes
providing advice to an employer client recommending a specific pension scheme for automatic enrolment
referring an employer client to another adviser or scheme selection tool, as appropriate.
Such activities are not regulated when provided to an employer.
Regardless of the level of support given by the adviser, ultimate responsibility for selecting an appropriate scheme for their workers remains with the employer. With this in mind, advisers may want to highlight the following to their employer clients:
the importance of selecting a scheme that is well run, offers value for money, protects their workers’ retirement savings, and works with their payroll systems or software
the information that will help employers make their choice.
If an adviser offers a solution that links to one or more specific pension schemes, they should make their employer client aware that there may be other pension schemes available to them in the market that could be more appropriate for their workers. By not doing this, there is a risk that the adviser could be seen to be restricting an employer’s ability to actively choose their own pension scheme.
Where the cost of a pension scheme is the driving consideration in selecting a scheme, it is important that advisers ensure that their employer client is made aware that there may be other schemes available to them in the market that may be more suited to the particular needs and requirements of their workers.