Do employers have an obligation to tell employees about changes in pensions law that could affect them, or is it for the employees to work out for themselves what is important?
The question is increasingly relevant as the world of pensions becomes increasingly complex. For example, with lifetime and annual allowances reducing significantly and the tax rules on drawdown becoming more complex, a greater proportion of the workforce is likely to be affected.
You should not risk giving or appearing to give specific advice to employees about their pension or other financial arrangements without having relevant safeguards or authorisations in place, but it does seem right to draw employees’ attention in general terms to changes that could impact them, particularly where the change has a direct relationship with benefits in their employment, and to encourage them to get advice.
For example, the reducing lifetime allowance on pension funds is normally calculated by reference to all of the funds that an employee has accumulated, not just his fund in your organisation’s pension scheme. In addition, the total value of the funds may need to include the value of life insurance. If an employee is not aware of this and continues to receive employer contributions into his pension that cause him to exceed the limit, the financial consequences for him in terms of additional tax liability could be very significant.
In legal terms, the duty of trust and confidence is relevant here, as is the duty of good faith that applies to employers who operate pension schemes. There is probably no positive obligation to advise an employee on what choices to make, but it is likely that these legal duties would require an employer to ensure that an employee avoids obvious pitfalls that are linked to the benefits that are part of their employment. The Pensions Ombudsman recently came to a similar conclusion in the case of an employee who was not told that returning to work for his old employer after taking early retirement would cause him to lose significant tax benefits on his pension.
Legal duties aside, alerting employees in general terms to the need to understand complex issues that could affect them is usually good for morale and employee relations.
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