For many years, pension advisers have had to come to terms with a rising tide of regulation. The Taxes Acts determine the tax benefits and the various Social Security Acts contain the regulations that set out the benefits for early leavers from pension schemes, the revaluation of members' benefits in line with inflation, disclosure of information to scheme members and contracting out. The Pensions Act 1995 covers the security of members' benefits and the Welfare Reform and Pensions Act 1999 introduced stakeholder pensions.
A recently enacted statute which is beginning to have an impact is the Data Protection Act 1998. This has increased the level of protection given to individuals' personal data and imposed new requirements on data controllers who decide how and for what purposes personal data is processed.
It is common to come across references to this act in day-to-day contracts for goods and services including application forms for individual life and pension plans. However, the act also extends to occupational pension schemes and group personal pension schemes, where the insurer, employer and scheme trustees (and, possibly, the IFA) are data controllers.
Typically, when an employer is considering setting up a pension scheme, the adviser will prepare a report on the different options available to the employer. The report may include illustrations showing what benefits members may receive on retirement.
At this stage, employees are unlikely to be aware of the employer's intentions as, naturally, the employer will wish to delay making any premature announcements about the possible introduction of pension arrangements to staff. However, under the Data Protection Act, the employer should have obtained authorisation from employees before releasing personal data such as names, dates of birth and salaries, for example, to the pension adviser, even where it is clearly going to be used for the benefit of members.
A long time may elapse between the initial instruction b
y an employer to an IFA to prepare a report on pension options and the actual implementation of a scheme. Clearly, the employer will not wish to raise false expectations in the minds of staff, even where employee representatives are involved in discussions with the employer.
However, failing to obtain individual employee consent to the release of employee data means failing to comply with the Data Protection Act. The pension provider will also fail to comply by processing the data, for example, by issuing client-specific illustrations.
The answer is to ensure the pension scheme reports do not contain specific employee information. Generic illustrations based on, say, selected ages and average salaries will be satisfactory.
In order to simplify and speed up the installation of a group personal pension plan, an IFA will often send application forms prepared by providers to potential members. These application forms will be pre-populated with information supplied by the employer. This triggers the obligation to provide “fair processing information” to employees.
As well as using the information to set up the scheme, the IFA may wish to use it for marketing purposes at a later date. In circumstances like this, not only are the employer and the provider data controllers for the purposes of the act but also the IFA.
The impact of all this is more form-filling. Employee consents and data protection notices should be given in advance of personal data being processed for these purposes.
Of course, this contrasts with the straightforward sale of an individual plan arranged by an IFA for a client where personal information is given by the client to the IFA specifically to enable the IFA to make a recommendation and there are no Data Protection Act implications.
A consent form acts as a mechanism to provide “fair processing information” to employees at the appropriate time and specifically records each employee's consent to the processing of his personal data for the purposes of establishing and administering the scheme.
Inevitably, there are fines for non-compliance but IFAs are in a position to advise employers on how to avoid the pitfalls and stay on the right side of the law.