I have been involved in pension management for over 30 years, the last 2o years dealing with large employers and the management of their schemes. In the past ten years I have seen a shift from in-house pension management to an outsourced approach, a shift from guaranteed benefits to freedom and choice, a shift from pensions as a perk to pensions for and now I see the transfer of governance from occupational trustees to master trusts and independent governance committees.
Despite all these changes, the pension industry is still dominated by the National Association of Pension Funds and a coterie of pension specialists who operate a closed shop.
So let’s ask just what is the future for pension management and what it means for payroll.
- The shift from defined benefit to defined contribution schemes. With most DB schemes closed to further accrual, DB pensions (other than in the public sector) are a matter for finance. They are of decreasing importance to Reward and their management and governance is typically outsourced to professional trustees and consultants. The role of the traditional pension manager is diminished, their skills are concentrated in a few consultancies that will manage out this problem over the next 30 years.
- By contrast , auto-enrolment makes DC pensions part of the reward strategy, if only because the law demands. Much more administratively challenging, workplace pensions are managed by payroll. Their value to reward is in the perception of new and current staff (the employee value proposition). The demise of the DC pension consultant following the abolition of commissions means that these schemes now need to be promoted internally.
- There has undoubtedly been a loss of trust in company pensions. From Maxwell, through the Equitable and as a result of mis-selling by advisers people are more wary of their pensions and less trusting of those who promote them. Payroll has the trust of staff and payroll personnel are uniquely qualified to tell it how it is.
- The qualities that typify a good pension manager are transferrable to pensions – specifically an attention to detail, an understanding of process, a well organised mind and a capacity to work diligently and iteratively.
- Payroll can learn pensions more easily than the other way round.
The practical barriers that have kept pensions a closed shop, are coming down but there remain issues of confidence that enforce the status quo. To the list above can be added five myths surrounding the pension function that when recognised as myths, should spur payroll’s ambition
- Pension managers need to understand investments; the capacity to advise on investments is no longer a part of the pension manager’s job. While it is important that pension managers have a basic understanding of investments, the pension manager is seldom if ever called upon to give investment advice (and when the call comes- it can and should be resisted).
- Pension managers need to be qualified; while many are qualified (usually through the Pension Management Institute but sometimes through FCA or Actuarial qualifications), many are not. Common sense and integrity are more important than formal qualifications.
- Pension managers understand Reward and Finance; many do but the club is open to new members.
- Pension management is a graduate career; this is absolutely not the case though graduates have had the confidence to continue this myth for decades
- Payroll has a glass ceiling for a reason; however this myth developed, it’s time it was dispelled!
There is a great deal of money in pensions (as payroll people know very well) A good payroll manager can command a salary of £70-80,000 but a good pension manager can demand twice that. There is a glass ceiling for payroll but the lid can and will be lifted.
Auto-enrolment is the trigger for change. It has created opportunities for payroll and changed the way pensions are seen in the workplace. If we are all in, then many of the complexities of pension communication fall away.
The shift from in-house managed defined benefit schemes towards Fiduciary Management, dilutes the role of the traditional pension manager.
The hard part of pensions is the management of the various data-interfaces that link members – pension providers – payroll and HR. Payroll understand data transfer and the processes behind them.
I very much hope than in 20 years time, when I hang up my clogs, I am proved right and that the future of pensions is in payroll’s hands.