Rising to Beecroft’s challenge- can we make pensions work for micro-employers?

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Scanning the Pension Press as one does when having breakfast these days, I came across an excellent piece of reporting on Pension Insight (fast becoming one of  the best on-line pension publications).

New laws are to be introduced which will compel all employers to contribute to pensions on behalf of their employees, from next year, in an attempt to tackle a growing retirement crisis.

A confidential report commissioned by David Cameron recommends that the introduction of the compulsory pension be delayed for small companies. The compulsory pensions are forecast to cost more than £3billion a year, with small businesses, which often do not offer the schemes to their workers voluntarily, facing the majority of the bill. The recommendation is one of the key “exemptions for small businesses” called for by Adrian Beecroft, a venture capitalist, who drew up the Downing Street report.

Steve Webb has made it absolutely clear that so long as he is pensions minister, the timetable for Auto-Enrolment remains sacrosanct – no scope for delay. This may be Minister speak for “try that one David Cameron and I’m offski” and since Steve Webb is the only pensions minister who has known what he’s talking about in the past 20 years, I don’t suppose that “DC” will be wanting to take him on.

nonetheless, it’s worth revisiting the questions Beecroft poses

  1. Is now the time to be besetting small businesses with more red tape
  2. Should small businesses be burdened with providing company sponsored pensions full stop.

The timing issue is political. Most small businesses will not be auto-enrolling until 2014 or 2015. Three years is a long time in the life of a small business and it’s probable that many of the businesses I’m talking to today will have folded by their current staging dates. Some will find their staging dates brought forward as they expand and the rest will face the new challenges with varying degrees of engagement.

The current and previous  Government has given the issue a long run up. We had a false start with stakeholder pensions in 2001 and they were 5 years in the making. The proposals for auto-enrolment and NEST were hatched in the aftermath of the 2005 election and though we live in a very different political climate today, the extent to which the Coalition has embraced the original proposals shows cross-party support for a strategic proposal which has spanned four Governments.

My conclusion is that there is no good or bad time to introduce compulsory funded pensions, you either do or you don’t , we’ve decided we do and the timing issue is a red herring.

On the second point, I think we are underestimating the capacity of the pensions industry to absorb the 5m or so individuals who like slow- boiled frogs, will eventually succumb to “pensions inertia” and start saving for their retirement with a lot of help from their employer and a little help from the Government.

My optimism is based on my belief that new technologies can be applied in the key areas where pensions have historically been inefficient and that we can deliver small pensions from small funded pension pots as efficiently as the Dutch can. Indeed I think we can be world leaders in this. No-one has properly considered our funded DC pension system and got to grips with its inadequacies until recently. I believe that an audit of our national capabilities to deliver would rank us way ahead of the American and Australian delivery mechanisms and in all but a few small (but important) details, ahead of the current world leaders- the Dutch.

The third question I would add to the two above is this; can we, as we come into the final straight, spurt for the line? Can we with the optimism and purpose we are harnessing to  host the Olympics, the depth of knowledge we have gathered over the past 60 years in providing funded occupational pension schemes and the will to be not just world class but gold medal wearing – achieve something really good?

Beecroft is right to remind us of the challenge but shouldn’t we be rising to it?

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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2 Responses to Rising to Beecroft’s challenge- can we make pensions work for micro-employers?

  1. Pingback: Perverse incentives; Sexycash or prudent pension? « Henrytapper's Blog

  2. Pingback: Selling NEST and auto-enrolment to the pension weary « Henrytapper's Blog

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