It’s an awful conversation to have, being asked about the pension rights of an employee with a terminal illness.
A recent decision by the Pensions Ombudsman seems clear that in terminal ill health cases the Ombudsman is prepared to closely scrutinise actions taken by the employer. Whilst decisions by the Pensions Ombudsman only apply to the case in which the decision is made, it seems wise to take note of what is being said.
The recent decision focuses on the extent to which employers should provide information on pension rights of an employee with a terminal illness
There is no legal obligation for employers to advise employees about their pension rights
The law prohibits anyone other than a person authorised by the Financial Conduct Authority from advising on pension rights.
However, a distinction should be drawn between “advising” and “providing information”. There is no specific guidance about information relating to the pension rights of an employee with a terminal illness. This can make it tricky to know if you’re doing the right thing, but there is some good practice to consider.
For employees with terminal illness, there are likely to be different options available under their pension scheme that impact the overall amount of benefits payable. Because they need to make a decision that is right for them, the member will need to have all relevant information to hand. Often, timing of any decision they make will also be critical.
On learning of an employee’s terminal illness, an employer has no obligation to provide the employee with information on which retirement option would be the most financially advantageous in their circumstances.
What to do?
To follow good practice, employers should:
- Deal with any queries from the employee about their retirement options and benefits quickly because the employee may have limited pensions knowledge and be preoccupied with their health.
- Provide the employee with information on the pension scheme’s benefit structure (for example, by providing a copy of the scheme booklet).
- Suggest that the employee seeks independent financial advice before making their decision.
- Make decisions on the employee’s ill-health retirement application without delay and, on approving the application, set the retirement date as early as possible.
- If before the retirement date the employee’s condition deteriorates, consider giving the employee an option to bring forward their retirement date.
They key is not to fall into the trap of advising on the pension rights of an employee with a terminal illness. Provide information and signposting only so that the employee can get qualified advice on which to base their decision.
You might also like to read our blog on managing an employee with cancer
Are you strugging with HR issues? Would you like to speak to someone in confidence about your obligations as an employer? Call us on 01706 565332 or drop us an email and we’ll get right back to you.
Metis HR is a professional HR Consultancy based in the North West of England supporting clients across the country. We specialise in providing outsourced HR services to small and medium-sized businesses. Call us now on 01706 565332 to discuss how we may help you.