Pension PlayPen’s response to the Pension Regulator’s Consultation Document

Helping small and micro employers identify a pension scheme for automatic enrolment

Why Pension Play Pen is engaging with the Pensions Regulator

The Pension PlayPen runs www.pensionplaypen.com for employers and their agents who are looking to establish a new workplace pension in advance of auto-enrolment.

Using a number of rules based algorithms, we match the demographic of the employer’s workforce, the contribution structure and the operational capabilities of the employer to workplace pension providers.

We rate 24 workplace pension providers against six metrics; – cost, investment governance, at retirement capability, member engagement, payroll and HR assistance and the durability of the proposition.

By combining the algorithms that influence the weightings of the metrics on an employer specific basis, we are able to provide a league table of what, in our opinion, are the most suitable pensions for each employer.

Our ratings and the rules of the algorithms are adjusted by primary research conducted by First Actuarial, this includes research on the providers and research on what payroll experience dealing with the providers we research.

The scope of our service is intended to be as wide as possible, we do not claim to be whole of market as there are offerings which we simply see as too weak to merit our research and providers who are unwilling to undergo our research, but we believe we offer the most comprehensive service of this type in the UK and with over 500 employers having used our system since we opened in 2013, we are the most used.

The only providers we will not research out of principle are those that are only available for the clients of certain advisers. We are pleased to see the Pension Regulator adopting a similar stance to its proposed directory.

In July we submitted a response to the Regulator on its private consultation on employer choice. We hope that this has positively influenced this latest consultation.

This response is intended to inform the Pensions Regulator through our experience and hopefully lead to a better outcome from the Directory – the implementation and maintenance of which we support.

Specific suggestions resulting from our experience

Criteria for inclusion

We are happy with the proposals that the Provider must have proved it is offering a qualifying workplace pension scheme, we assume that this will require some validation by tPR, self-certification of this is not enough. From April 2015 the qualifying rules will be tougher and should we at Pension PlayPen see any provider on the list which, in our opinion, is not following the qualifying rules, we will be asking why it is included in a very public way.

We are happy too that the Directory is not used as a promotional tool by providers, TPR have always said it should not endorse one provider over another, purely for promotional purposes.

We are not happy with the criteria that a scheme must

Accept without qualification any employer regardless of the amount paid to their workers (individually or on average) or when their staging date is

Don’t refer to “schemes”

Firstly, we question the use of the word “schemes” to refer to workplace pensions. Schemes is a word that refers to occupational pensions, it is rarely used of group personal pensions which are referred to as plans. Using “schemes” suggests a bias towards workplace pensions operating as occupational schemes (using multi-employer master trusts).

PROPOSAL We propose that TPR replace all mention of schemes with “workplace pensions” to avoid this bias.

The universal acceptance criteria is wrong

The right for a provider to turn down business for commercial or ethical reason or any other reason is fundamental. Only NEST do not have the right to turn business away (and even NEST has money laundering checks-insisting on a UK bank account for contribution collection).

Any workplace pension provider who agreed to this criteria would be making a statement about its lack of controls which would be to its detriment. Were an employer to insist on its right to contribute to that provider’s workplace pension based on its inclusion on the Directory, then the provider could be putting its brand, its commercial obligations to stakeholder or its membership and even its core principles in jeopardy.

Providers should not be asked to compete with NEST in providing a public service obligation and the logical conclusion to this argument is that only NEST should be included in the Directory. If it is a Directory of one then it serves no useful purpose.

We note the qualification that a provider might exclude an employer who didn’t consent to adhering to reasonable T&Cs, but what employer wouldn’t accept T&Cs at outset? By the time wilful non-compliance is discovered, it is too late!

The inclusion of this criteria in the Directory should lead to any sensible Provider boycotting the Directory. We have a system in place at www.pensionplaypen.com which allows reasonable exclusions for business. Some workplace pension providers exclude on the size and shape of contributions (including average contribution per member). Some providers will only accept business after sight of a workforce assessment and a statement of the contribution structure to be employed.

By way of example, the Pensions Trust’s rules for Smarter Pensions exclude the use of minimum contributions against band earnings.

Some exclude on certain industries (being industry specific providers) and some exclude employers who won’t contribute digitally or accept electronic communications.

Finally many providers, quite properly, will not accept “shell schemes” where employers request the set-up of a scheme, a long time from staging, in hope of avoiding a capacity crunch. This practice was ruinous to many providers during the introduction of stakeholder pensions and we see a criteria that forces them to accept business that may never materialise but has a cost to set-up as unfair on providers looking to protect themselves “second time around”.

All of the exclusions we accept are perfectly reasonable, they are designed to ensure a proper market where there is proper differentiation and proper choice.

The proposal only to include providers on the Directory who do not make these exclusions will lead to the Directory being too small, insufficiently diverse and potentially it could lead to problems for those providers who – for marketing reasons – accept the criterion against the interests of shareholders, members, other policyholders and the underlying principles of the provider’s governance structure.

PROPOSAL – TPR drop this criteria and replace with “workplace pension providers are included provided they will publish those exclusions they make to underwrite employers participating in their workplace pensions”.

PROPOSAL– The link to the Provider, offered from the Directory should take the employer or agent to a “landing page” which specifically states the underwriting criteria of the Provider as described by the provider (and scrutinised by the Pensions Regulator

Duration of the Directory

The Pensions Regulator (TPR) has been here before, it published a list of Stakeholder Pension Providers which was not a success. It is shocking that this list can still be accessed http://www.thepensionsregulator.gov.uk/employers/stakeholder-pensions/registerSearch/SchemeList.aspx

Most of the providers on this Directory are no longer offering schemes, many withdrew over ten years ago. Most providers listed are no longer trading under the style represented under the Directory.

TPR’s proposal to take down the list from the end of initial staging in 2018, makes sense in this context, but this supposes that staging will end in 2018 and the need for the Directory will be over at that point.

It won’t end, there are some 200,000 new employers born every year (a number sourced from TPR’s previous paper). We cannot see any reason for the Directory to be taken down in 2018.

PROPOSAL The Directory should remain up so long as there is need for it and resource within TPR to maintain it.

General comments on choice

We recognise that TPR are looking to use this directory to whittle down the number of candidates for an employer’s short list and to exclude from general consideration a number of marginal players.

We agree that there is no place in the Directory for Providers who are only marketing themselves to employers who sign an advisory agreement. Vertically integrated master trusts have

We do not think this should be done on the criteria of universal acceptance of employers.

It is easy for Providers to offer universal acceptance of employers. They simply need to charge employers an upfront fee. This tactic ensures full cost recovery of implementation fees but is likely to prove beyond the means of many SMEs.

We do not suggest that providers be banned from charging these fees, but suggest they render the criteria of universal acceptance nonsensical.

We think there are better criteria

Most providers who are unsuitable for the Directory will fall foul of the new qualifying rules in April 2015 (and the Directory is one way to enforce them). The Directory is the opportunity to encourage the proper adoption of the new measures for master trusts and contract-based workplace pensions (see below).

An opportunity lost?

The Pensions Regulator has gone to some length to create an Assurance Framework (MAF) for master trusts, the FCA have created a similar framework to govern contract based workplace pensions via Independent Governance Committees.

Adopting the MAF is voluntary for master trusts while the ICGs present a challenge to insurers. We think there is an opportunity to reward master trust and contract based workplace pensions.

With proper criteria, the Directory can work

So we think that the Directory is a good idea, that it will help small employers and that it is a starting point for good employers who want to make the right choice.

It is however a starting point and not an end point.

PROPOSAL; we recommend that the Directory makes it absolutely clear that the Directory is not in itself a compliance tool. Inclusion on the Directory does not mean that the Provider is suitable for the employer and greater due diligence should be taken before choosing a workplace pension.

And there must be signposting to advice

Purchasing a workplace pension should be considered a major corporate procurement. Even a micro employer will commit tens of thousands of pounds into these plans.

If employers properly engage with the procurement decision, it is likely that they will want to compare workplace pension providers who will offer services to their staff under auto-enrolment.

It is relatively easy to work out which providers will offer a specific employer a workplace pension. www.pensionplaypen.com uses company specific data to search the market.

It is also possible to offer a comparison tool that compares the carious offers by matching employer data and the provider offers. www.pensionplaypen.com offers this service and lists each provider in a league table based on employer requirements.

Pension PlayPen is only one of a number of services that help providers make an informed choice. There are others including Nurture and Autoenrollme.

PROPOSAL; we propose that the Directory should include a section that lists those advisors who make sense of the offers available to employers.