1 July 2005

Promoting the uptake of pensions

What has changed?

On 1 July 2005 the Government amended The Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 to make it easier for employers to promote the uptake of their pension schemes by their employees.

What types of pension scheme are affected?

The changes outlined in this guidance relate to your group personal pension schemes and stakeholder pension schemes, but only if you the employer make a financial contribution to the pension you are promoting, and only if you do not receive a direct financial benefit from promoting the uptake of these pensions. More details on these and on other conditions are explained below. Other types of pension are not affected by these changes.

What does this mean for me, the employer?

A new exemption was provided in this Order which enables you the employer (or your representative) to promote the uptake of your pension scheme without needing to be authorised by the Financial Services Authority (FSA), and without your promotions needing to be approved by a person who in turn has been authorised by the FSA.

What kind of ‘promotion’ do you mean?

The new exemption applies to all types of promotion, both oral and written, although any written promotional material about the scheme must inform the employee of their right to seek financial advice from a person authorised by the FSA. It would be good practice to tell employees of this when you speak to them, too.

So what can I say?

As long as the conditions set out in this guidance are met the new exemption places no legal restrictions on the types of promotional material which your representative may provide, for example whether your representative decides to provide generic advice about the benefits of taking up a pension in general, or whether your representative provides individual employees with tailored financial advice about how they should manage their personal finances given their specific circumstances.

In practice, it is unlikely that your representative will be sufficiently competent and knowledgeable to provide individual employees with specific and personal financial advice which is tailored to their own particular circumstances. We therefore recommend that you avoid giving individual-specific financial advice to employees. It is likely that most employers’ representatives would, however, be able to explain to employees how they would benefit from taking up the pensions being promoted.

Who can I ask to make my promotion?

Your promotion must be made by someone who is employed directly by you, but no other restrictions apply on who your representative might be. The exemption does not apply to third parties who might be acting on your behalf, for example your pensions administrator where you have outsourced this function.

You must make sure that your representative possesses sufficient knowledge of the pension scheme they are promoting and is sufficiently competent to make the sort of promotions which they are engaging in. There are no restrictions or requirements on how this competence and knowledge should be developed. There are no formal training, competence or accreditation criteria, and no restrictions or requirements placed on who might advise your representative.

What other rules are there?

The exemption only applies if you make a financial contribution to the pension you are promoting, i.e. a contribution to the employee’s pension arrangement. There are no minimum requirements on the size of financial contribution, but employers are required to disclose the size and nature of their contribution.

This disclosure must be made in writing before the employee takes up the pension, and should explain to the employee how much you are contributing to that employee’s pension, rather than how much you are contributing to the pension scheme as a whole. But there are no restrictions on how this might be expressed, for example you could express it as a percentage (e.g. 5% of the employees’ salary) or in terms of particular sums (e.g. £100 per month).

Secondly, you must not receive a direct financial benefit from promoting the uptake of pensions. In particular, you must not earn a commission or equivalent form of financial reward as a result of employees taking up pensions which you have promoted. An equivalent form of financial reward would include any reduction in the amount of premium payable which you pay in relation to any insurance policy issued to you by the provider of the pension scheme.

Where can I find out more information?

Find out more about this exemption and read the regulations
Further information from the Treasury on pensions issues

If you want to find out more about pensions, especially stakeholder or Group Personal Pensions, you can go to: www.thepensionservice.gov.uk/employer

You can find out more about best practice in pensions at www.pensionsatwork.gov.uk, or if you would like more information about how pensions are regulated you can go to www.thepensionregulator.gov.uk or www.fsa.gov.uk.