Yesterday was dominated by one word – choice.
During the day I attended the ICAEW Auto-enrolment conference with around 120 accountants. It was a very serious event, enlivened by an outburst from the floor as an accountant objected to the pre-selection of workplace pensions by his fellow accountants and many of the trade bodies of which his clients were members.
“Pre-selection” is not a term I have heard before, but it pithily encapsulates what goes on when an organisation can do if it has the trust of its members. In auto-enrolment, pre-selection means that if you are a Hairdresser or a member of the Institute of Chartered Book-keepers or a Newsagent or just a client of XYZ Accountancy Firm, you may find yourself being offered a pre-selected pension product.
Some of these pre-selection exercises offer preferential terms, if you use the Scottish Widows GPP offered by the Federation of Small Businesses you get easy acceptance and low up-front fees. The same can be said of the ICB’s deal with LEBC and Aviva. Others of the deals have less fiscal benefit but at least mean that employers are divested of the onerous task of researching the market.
And of course, if the pension recommended, there is always somebody to blame! Well isn’t there?
Can you outsource an employer duty?
The concern of the accountant was framed in stark terms. He explained that the employers he worked with would be investing 8% of most of their payroll for years and decades to come into workplace pensions and could reasonably be expected to have exercised some care in the selection of the pension- not least by those whose salary was being docked.
In my opinion, the Regulator is right to place the choice with the employer. It is not a decision that can be outsourced to a trade body, accountant or adviser. Ultimately the duty to choose rests with the employer.
What can an employer do to protect himself?
An employer cannot be held responsible for the outcomes of the pension scheme, that depends primarily on money paid in, market conditions and the way money is drawn in decumulation.
However, employers can ensure that they have taken reasonable steps towards choosing a suitable pension. This means looking beyond the first product shoved in their faces by a trade body and asking what other alternatives are available. It is very hard to see how any decision on the workplace pension can avoid looking at NEST, or Peoples Pension , or NOW, Legal and General , Aviva, Scottish Widows and Standard Life. There are many other very good choices including Friends Life and Royal London (both currently on the injury list) and a host of up and coming mastertrusts like GenLife, Trust, Smart and Smarter Pensions.
Where do you stop?
This is the problem facing employers. They simply don’t have the means to research all these options, let alone make a meaningful decision on what’s best. If asked to document the process they took to come to a decision, they’d probably end up with a statement that sounded like the pin sticker selecting a horse for the Grand National.
The Choices TaskForce
Friends of Auto-Enrolment has set up a task-force to deal with this issue of choice. We have a Terms of Reference in the making and when it’s done, I will publish it on here. Our aim is to work with the Pensions Regulator to provide a guide to employers that helps them understand what makes for a good workplace pension and why it matters that employers do what they can to get a good pension for them.
I don’t want to pre-judge the outcome of the group’s work , but (in high level terms) we will be calling for
- More engagement by employers in the decision on the workplace pensions
- Better education for employers in making a suitable choice
- Improved empowerment for employers to take a decision and to document how and why they chose as they did.
Where’s this going?
We have remarkably open Government, I will be taking the Group’s objectives directly to the Round Table set up by Ros Altmann next Wednesday. The Group will be discussing them with the Pensions Regulator and we will be sharing our work with the Friends of Auto Enrolment.
We hope by establishing the Choices Taskforce, that we will be able to meet the concerns of the gentleman at the Conference full on. There is nothing wrong with direct offers from trade bodies or accountants. There is nothing wrong with payroll telling employers there are some providers with whom they work better than others.
However, in the final analysis, the member of an auto-enrolment scheme is entitled to ask his employer whether the choice of pension was made for his or her benefit or simply to tick a box in an auto-enrolment checklist.
Employer’s should be made aware that the history of pension scandals we have witnessed in the past three decades, all started at the point of sale, with poor buying and poor selling. We cannot allow auto-enrolment to repeat the mistakes of the past.