How to help your clients choose a pension scheme
Christine Scott outlines how advisers can help their clients choose the right pension scheme.
Choosing a workplace pension scheme is one of the key tasks that an employer with staff to automatically enrol will need to undertake to comply with their workplace pension duties.
Research by The Pensions Regulator (TPR) shows that more than 70 per cent of small and micro employers are likely to ask their business advisers for help with their duties.
Employers will need to either set up a new scheme or check their existing scheme meets certain criteria. Ultimately, it’s the employer’s legal responsibility to choose a pension scheme.
How business advisers can support their clients
Business advisers can help their clients by:
- Providing factual information including offering a comparison of the schemes’ investment funds, charges and services.
- Recommending a specific pension scheme to employers for automatic enrolment.
- Referring clients to another adviser or to a pension scheme selection tool.
It is important to note that business advisers need to be authorised to give certain advice. While they can provide investment advice to an employer choosing a pension scheme for automatic enrolment, they should only provide investment advice to an individual if they have the appropriate authorisation from the Financial Conduct Authority.
It may not always be clear whether a client is seeking advice as an employer or an individual, for example if the client is thinking about joining the scheme themselves. Advisers may want to specify in their letter of engagement that any advice provided is in the client’s capacity as an employer and not as an individual.
ICAS members giving business to business advice should refer to the ICAS Code of Ethics, and make sure that any automatic enrolment work carried out is covered by professional indemnity insurance.
More information on how you can help your clients to choose a pension scheme can be found on The Pensions Regulator website.
What to consider when looking for a pension scheme
The type of scheme most likely to be available to your client is a defined contribution scheme run by a large, specialist provider that is designed to be used by many different employers. These include master trusts that are run by a board of trustees and group personal pensions that are run by financial service companies such as insurance companies and investment managers.
These schemes generally cost less and require less involvement from the employer compared to other schemes.
The Pensions Regulator has more information on the options available.
There are a number of factors to consider when recommending a pension scheme. Some features, for example letter translation services, may be more relevant to specific employers than others. The Pensions Regulator has produced an ‘at a glance’ summary to help you with this task.
Tax relief
Advisers can also help their clients with how tax relief is applied to staff pension contributions. Many pension schemes only support one tax relief mechanism, but advisers should understand which system they use and which is likely to best meet their clients’ requirements. Find out more information about tax relief.
Payroll software
If your client uses payroll software they should ask the payroll provider whether it will work with the pension scheme they would like to use.
Your client also needs to check that the software can carry out all the automatic enrolment tasks. If it can't, they should consider updating their payroll software or speaking to the pension provider to see which tasks they can carry out.
Automatic enrolment solutions
Some advisers offer a solution that links to one or more specific pension schemes, for example the payroll software may be set up to link with a specific scheme. In this instance, advisers should make their clients aware that there may be other pension schemes available that could be more appropriate for their staff.
Writing to an employer’s staff
Employers have a duty to write to their staff about their automatic enrolment rights. Advisers who do this on behalf of their clients should make sure they don’t inadvertently provide investment advice. The Pensions Regulator has developed letter templates to help with this task.
More information on how to choose a pension scheme is available on The Pensions Regulator’s website.