I am comfortable with the interventions by Government in the sales side of workplace pensions.
The DWP’s minimum standards legislation is progressing well and we look forward to seeing some secondary legislation in September.
The Treasury’s work transforming the choices we will have from next year at retirement is picking up pace.
The longer term projects – around commissions , transaction costs and CDC and the introduction of the new Single State Pension, seem on track for delivery in 2016.
Auto-enrolment continues to progress well and the Pension Regulator is doing a great job ensuring “nobody gets left behind”.
So Steve Webb and George Osborne’s work is coming to fruition and both the DWP and the Treasury look to have done a great job… so far.
This week we saw the 4m’th worker enrolled into a workplace pension. The pensions of the 15,000 or so employers who have so far staged have been generally been chose with care, mostly by pensions experts either in-house or through external advisors.
The OFT were not however describing the larger employers when they stated last year that they had seldom encountered such weak buying as in the purchase by employers of workplace pensions.
They were referring to the kind of employers who are staging now and the 1 million employers still to stage most of whom have little more buying capacity than the man on the Clapham Omnibus.
They represent the biggest remaining challenge to the workplace pension reformers. For although they will (thanks to minimum standards) buy into better pensions, they have no idea if they will be buying a pension that works (either operationally or in meeting the needs of their staff).
Last month, I got a mail from the Pensions Regulator asking which contained the following.
TPR are giving some thought to how smaller employers will go about finding a pension scheme and would very much like to hear your views on the subject ….
Is there really a problem for unadvised small and micro employers to understand the market and identify pension scheme(s) suitable for them?
Are there already solutions to this problem out there suitable for small and micro employers?
Could existing products or services be made more effective/adapted to address the needs of small and micro employers, e.g. could advisor-facing products be opened up to an employer audience?
How could visibility of those products best be increased among the diverse population of unadvised small and micro employers? Please let us know if you think there are any barriers to increasing visibility to this sector of the market.
What would the appropriate level of scope and sophistication be for solutions for small and micro employers who want to choose a scheme without the services of an intermediary?
If you don’t think the market will or can address this problem, why not? Please indicate whether these are purely commercial considerations or other more basic/fundamental considerations
These are precisely the questions I asked myself before setting up www,pensionplaypen.com , they were asked by the OFT and they are now being asked of the pensions industry,
For many in our industry, the fate of the remaining 6m yet to enrol is of little commercial significance. “Nest will take care of this” is a typical response I get when I ask the question.
For many SMEs and micros is the right answer. But if an employee asks his boss why he chose NEST and is told- because it was the only answer then something will have gone wrong. If your workforce is elderly and/or high-earning, if your workers are looking to aggregate their pots into one big pot of to take their pot with them when they leave you, then NEST is the wrong answer.
And if you’ve just invested 8% of your workforce’s wages into the wrong answer, then they are entitled to know why. Even if NEST was the right answer , you should be able to tell them why.
But it seems that we currently think it acceptable for employers to establish a workplace pension scheme without taking advice, without doing research and without any external assistance in making a choice.
It seems we have learned nothing from the OFT report about the weakness of employer purchasing. We are simply trusting in minimum standards and the market to provide competition.
The market is providing little competition. In a research report that accompanied the questions listed above are some observations from the Pensions Regulator
Research carried out by DWP (EPP survey 2013) showed that 48% of small and 79% of micro employers currently have no pension scheme so will have to choose a new one as they prepare for AE.
TPR research suggests that:
- Around one in five small and micro employers claim they will be self reliant , i.e. they won’t or are unlikely to seek advice (approx 290,000 employers)
- Around one in ten will be self reliant and don’t know how to select a scheme or think it will be difficult (approx 130,000 employers).
- Other SMEs will turn to their accountant or bookkeeper for assistance with finding a pension scheme, yet only 41% of accountants anticipate helping their clients with this and they are not necessarily better informed than their clients.
- Our qualitative research suggests self reliant small and micro employers fear choosing a scheme and want to understand what schemes are available before making a choice – they will rely of a mix of personal recommendations, internet searches, comparison websites and TPR’s website for information.
This is an ongoing problem – approx 200k employers are ‘born’ every year, many of which will need to find a new pension scheme
So these employers are not comfortable being ignorant and even less comfortable with the lack of information available in the market. The Pensions Regulator concludes his report in stating what its research suggests small employers do want.
Simple practical steps on how to choose a pension scheme without having to understand scheme types
Practical questions to ask to ensure the scheme is suitable Practical questions to ask to ensure the scheme is suitable (e.g. can I buy it direct, will it do everything I need to do)
Shortlist of AE schemes available to them
Ability to compare charges and any employer fees of shortlisted schemes
Ability to compare wider AE support offered by scheme (e.g. workforce assessment , communications to workers)
I jokingly replied to my colleagues that the answer was to nationalise Pension PlayPen. We appear to be the only online resource dedicated to answering the regulators questions and delivering the services that small employers want.
We have to charge to do this and that charge has to fall on employers. To rely on other forms of funding would almost certainly fall foul of some rule or other around inducements.
The cost of our service, which includes a workforce assessment, contribution modelling as well as whole of market procurement, First Actuarial analytics and the provision of reports and certification from a qualified actuary, is £499.
The service is available to any employer in the UK and can be accessed directly at www,pensionplaypen.com/register.
Nobody wants to admit that there is a huge shortage of advice and guidance and simple information for employers. Everyone is assuming that this problem is sorting itself out. But it isn’t sorting itself out.
SMEs and micros are no better buyers than they were this time last year when the OFT made this comment.
I have asked the Pension Regulator what steps are being taken to remedy the situation. I pointed out that there were many unregulated advisers who we could educate to help promote good pension purchasing by employers, referring to this statement by the FCA and tPR in March.
and I got back this reply.
Although giving advice to an employer regarding their choice of pension scheme and/or fund is CURRENTLY unregulated, TPR believes that people without the right skills and knowledge should not be giving advice or expressing an opinion on this and we recommend sticking to fact based communications on this matter.
There is also a risk of blurring the edges and straying into the regulated advice space, if the individual representing the employer is or will be a pension scheme member, as they could be investing their own money into the pension scheme.
We believe that the ICEAW have published a handbook which advises their members against giving advice or guidance to employers on the choice of pension.
So employers will be reliant on people with the right skills and knowledge to give advice or express an opinion on what they should do. The Institute of Chartered Accountants is advising its members not to get involved and time is moving on.
I do not see the strategy within the private sector. Pension PlayPen cannot get to 1m+employers without some serious investment and I have not got those deep a pockets!
I am afraid that this is a matter for Steve Webb and the DWP policy reform team. Unless we get some “skill and knowledge” about the suitability of workplace pensions and until we get systems in place which allow employers to take informed decisions and provide a record of the decision making for their staff, we are at risk of having 1m employers who have bought in the dark.