As the spooky season is upon us, we at Pensions Monitor thought we’d embrace the theme and ask ourselves the question: What are the nightmare scenarios for HR managers regarding the new End-of-Service Benefits Savings scheme?
And so, we have outlined a number of “spooky nightmare” scenarios that may keep HR managers awake at night. Admittedly, the topic of the new scheme may not yet feel urgent for many companies, however, we believe it is essential for all businesses to start preparing for this momentous change which will sooner or later become compulsory.
So, let’s face our fears:
Scenario 1: Faulty administration software
Let’s assume the software of the Scheme Provider that is supposed to accurately calculate monthly contributions, record fund holdings, purchases and sales of fund units, has some bugs and produces errors. This could, of course, result in an almighty nightmare, with claims from employees and fines from regulators. Who would pay for the damages in such a case?
Solution: We recommend that HR managers, for the sake of sound sleep, double-check that their Scheme Provider includes an indemnity and damages clause in their contract. Furthermore, do ensure that the provider has a proper product liability insurance cover in place.
Scenario 2: Competing funds perform better
Let’s say your company has partnered with Fund Manager AlphaCo, and your employees invested in their funds. But – shock! After some time, it turns out that competitor Fund Manager BetaCo’s funds perform significantly better. While your employees' investments show a -10% loss, employees at companies partnered with BetaCo are now celebrating a +10% gain. Understandably, your employees are unhappy, and now blaming HR for selecting the wrong Fund Manager.
Solution: We recommend that HR managers carefully assess potential Fund Managers comparing many criteria. We also recommend that HR managers track the fund performance constantly, and switch providers if necessary.
Fear not, Pensions Monitor will soon be launching tools to support HR managers in this regard.
Scenario 3: Your employees opt for high-risk funds and suffer major losses
Let’s suppose your company has partnered with Fund Manager AlphaCo, which offers a broad range of funds. Many of your employees are attracted by their high-return (but high-risk) fund called “Asian Interwebs Crypto Opportunities Fund” and invest all their savings in that fund. The fund prospectus made it clear, in the small print, that targeted returns could reach 50%, but that the fund is highly volatile. After one year, the fund has lost 75% of its value. Your employees are now up in arms and are very disappointed!
Solution: In the new world of the End-of-Service Benefit Savings scheme, employees need to take responsibility for their investment choices. That said, it is likely that many employees will be making an investment decision for the first time in their lives.
We at Pensions Monitor believe that Employers – and the HR department in particular – have a responsibility in helping employees to make the right choice. In practice, this could mean for e.g., providing financial literacy courses, or passing on to employees all the necessary information of each fund, particularly about risk and reward.
Pensions Monitor will soon launch some courses that will help your employees in this regard.
Scenario 4: Fines from MoHRE
Several employees query the amounts they see on their statements. One employee was off for maternity leave in the middle of the month, yet HR seem to have thought she was off at the beginning of the month resulting in a missed contribution. Another employee, whose name is almost identical to somebody else working for your company, claims that his start date was mixed up with that other employee, resulting in lower contributions.
Both employees write to MoHRE, who slaps a big fine on your company. Your CEO is furious and demands answers.
Solution: For the new End-of-Service Benefits Savings scheme, HR must overhaul their end-of-month processes. It is essential for HR to clearly communicate to the scheme provider, every change - new hires and departures - with accurate information. In addition, Finance must also ensure the accuracy and timeliness of required payments. Any process failures could indeed lead to hefty MoHRE fines.
Too many spooky nightmares?
We hope we haven’t caused HR managers too many “spooky nightmares” with this article. However, these scenarios could become reality if they aren’t proactively addressed.
Pensions Monitor will soon be launching tools to help HR managers avoid these potential nightmares.
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Happy Halloween!
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