Pension schemes can often appear difficult to understand for many employees; a reflection, perhaps, of a more widespread lack of engagement with financial savings and planning. The question then frequently arises: how far does an employer's duty to inform employees about pension benefits extend?
In the next of our back to basics series, Gowling WLG's Combined Human Resources Solutions (CHRS) team explain the extent of an employer's duties to inform its workforce about the pension benefits they're entitled to.
What does the law say about an employer's duty to inform employees about their pension benefits?
There have been surprisingly few case law decisions in relation to employer duties to inform employees about their pension benefits. Surprising, because it might be easy to assume that there is at least some duty to tell employees about what pension benefits they are entitled to, to ensure they make the most of their benefit entitlement.
But in fact, most decisions have made it clear that there is almost no legal duty on an employer to inform its employees about pension benefits or indeed other financial matters. There is also no implied contractual duty on employers to ensure details of the company pension scheme are given to employees.
This is not to be confused with the employer's duty to tell employees about pensions more generally. There are statutory obligations under the Pensions Act 2008 to provide employees with information about automatic-enrolment, and the workplace pension scheme the employer uses.
However, what we are considering here is whether that employer's duty extends to telling employees about any contractual rights, benefits or entitlements, as well as the potential financial implications of making one particular choice in relation to their pension benefits over another.
Is there any obligation on an employer to inform of pension benefits at all?
Yes, but the courts have found that this duty arises in very fact-specific circumstances. In Scally v Southern Health and Social Services Board , the House of Lords confirmed there is an implied duty on an employer to inform an employee about an employee's contractual rights to pension benefits. But this is a limited duty and will only arise in very specific circumstances where:
- the employment contract results from negotiation with a union or other representative body;
- the particular contractual term must offer the employee a valuable benefit which is dependent on action being taken by the employee to take advantage of it; and
- the employee cannot be expected to be aware of the term unless it is drawn to his/her attention.
In these (and only these) specific circumstances, a contractual duty may be implied into the contract requiring the employer to inform their employees of their right(s).
Has the scope of Scally been extended since the case was decided?
No. The Scally decision was made nearly 30 years ago. And the subsequent case law decisions in this area (there have not been many) have been reluctant to extend the limited duty. The key principles which have since been decided are as follows:
- there is no general implied duty on employers to give advice about an employee's pension benefits (Outram v Academy Plastics );
- there is no obligation on an employer to inform an employee if they believe the employee is making a mistake in relation to his/her pension benefits (the University of Nottingham v Eyett ):
- there is no general duty to take reasonable care of an employee's economic well-being (Crossley v Faithful and Gould Holdings ).
If Scally hasn't been extended, is there anything else employers have to watch out for?
The appeal court decisions of the past three decades have taken a consistent line on this area. Where more ambiguity arises is in some of the Pensions Ombudsman decisions.
For example, in 2015, two separate Pensions Ombudsman decisions reached different conclusions in relation to a seemingly similar set of facts; the question of whether an employer has a duty to engage with questions of an employee's tax planning.
In Cherry (PO 7096), the Ombudsman found there was a duty on the employer to provide relevant information to employees about the tax implications of their actions (in this case, the tax implications on their benefits following re-employment).
By contrast, and more consistent with the Scally line of cases, in Ramsey (PO 3290) - the Deputy Pensions Ombudsman ruled that an employer was not under a duty to warn a scheme member that the reduction in the annual allowance would make him personally liable for an annual allowance charge.
More recently (July 2018), the Deputy Pensions Ombudsman held that where a member (Mr Y - PO 13540) of the pension scheme was terminally ill, the employer should have given Mr Y the option to bring forward his retirement date, taking into account the unusual circumstances (i.e. Mr Y's very serious illness). This would have meant greater benefits on Mr Y's death than would have otherwise been available, as the scheme provided for more generous benefits on a member's death whilst a pensioner than whilst the member remained in employment.
Whilst the Mr Y and Cherry decisions could suggest that employers are under more of an obligation to provide information about pension benefits than was previously thought, our view is that these decisions are both very fact specific, are not binding (as Ombudsman, rather than appeal court, decisions) and caution should therefore be taken before following them.
If an employer is required to provide an employee with information, does the employer need to ensure the employee receives the information?
No. Case law has made clear that where the duty in Scally arises, it is not an absolute duty. Rather, it's a duty to use reasonable efforts to inform the employees concerned about their rights. This means that the employer is not required to ensure the information is received by each affected employee (Andrews v Kings College NGS Foundation Trust ).
However, the employer must take reasonable care to ensure any information it does provide is accurate, clear and not misleading. So once an employer has decided it is going to help employees in understanding the benefits available to them, it must not be inaccurate (Hagen v ICI Chemicals & Polymers ).
Does the duty in Scally apply to any benefit the employee is entitled to?
No. The duty only applies to contractual benefits. It does not apply to any rights or options the employee does not have a contractual entitlement to (Ibekwe v London General ).
Is there anything else an employer should consider when discussing pension benefits with employees?
Employers should recommend that employees take independent financial advice where relevant, and steer clear of attempting to provide this advice themselves, even if asked to do so.
Even if there is no legal obligation to do so, if employers are considering changing employees' pension benefits, as a matter of good practice, the employer should consider informing the employees of the change in advance, and certain types of pension scheme changes will necessitate a minimum 60 days consultation period. For more information, contact Liz or your usual Gowling WLG pensions contact.