Deciding whether, or how much, information to provide to members/employees can be a difficult call for employers and trustees – in some cases there is a clear legal requirement to provide the information, but what if there isn’t?
In this context, the dismissal of a recent Pensions Ombudsman complaint about a failure to inform members about adverse tax consequences will come as a relief to employers (and trustees). Multiple employees complained that they had not been informed that their pensions would be subject to tax penalties after they retired and then re-commenced employment after a short break. The PO did not uphold the complaints, on the basis that there was no legal duty to provide the information, and that there was no maladministration. However, although there was no direct financial consequence for the employers in the case, the PO thought there may well be a moral duty to provide the information.
The facts of the complaints are very similar to that of an earlier, well-known, PO decision of Cherry, where a different outcome was reached – that the employer had a duty of care to inform Mr Cherry of the tax consequences of his re-employment on his pension. But in that case, the employer had voluntarily accepted to pay the additional tax liability of Mr Cherry, and had said that a ‘responsible employer’ would implement systems to prevent the re-employment issue recurring. My interpretation of Cherry has always been that it was specific to its facts and did not mean that employers in general had a duty of care (you can read my analysis of that decision here).
However, it would be overly simplistic to say the case means ‘Be warned if you have voluntarily assumed responsibility for providing information, don’t worry if you haven’t’. After all:
- Is the issue about tax consequences, or is it about benefits under the scheme? These are not treated in the same way. If the issue is about providing information about scheme benefits, a higher standard of conduct could apply where the scheme is dealing with a vulnerable person – click here to read about a recent case on this point.
- When might a scheme or employer be considered to have voluntarily assumed this responsibility? The decision doesn’t consider this in detail. Although the circumstances are different, one example of voluntarily assuming responsibility for a member is a decision where a receiving scheme was found partially liable after it had volunteered to ‘investigate’ a transfer-in.
- What about other considerations, such as reputational issues? Although the PO didn’t go as far as suggesting that the employer should voluntarily agree to pay the penalties, he did say it was ‘commendable’ that the employer in Cherry had done so.
The latest decision confirms the view I had taken of the limited scope of Cherry, but employers and trustees should still exercise caution depending on the particular circumstances. This may be difficult for trustees given the widespread use of third party administrators, but it is important to think carefully which cases, or circumstances, should be flagged for special attention, and the weight to be given to any reputational concerns.