A payroll administrator pays someone tomorrow, a pension manager pays someone for ever.
A workplace pension is no more than deferred pay, you remove money from today’s pay-packet and it is returned later, when there’s no money coming in from paid work.
The difference between paying someone now and someone in the future’s about what happens to the money in the mean time. Someone has to have custody of the money, be prepared to invest it and have a way of keeping the future pensioner informed on progress. There must also be a means to repay the money in later life.
The responsibility to ensure that those deferring pay get security , value for money , and proper information generally falls to the provider of the pension but the choice and oversite of that provider rests with the manager of a workplace pension.
What’s going on with large employers?
Historically , large employers employed a dedicated manager who had responsibility for ensuring that those who deferred pay, had the same meticulous attention paid to them, as those at work being paid wages. These people were called pension managers; there are a few still around, though many companies have bundled the pensions brief into “reward” or “finance” or “human resources”.
As defined benefit pensions move from centre stage – to back-stage, the function of a pension manager is often outsourced to specialists providing scheme secretarial, fiduciary management and corporate trustee services.
Many in-house pension managers are now working for these outsourcing service providers.
But this leaves a problem for the members of schemes. There is no one left in house to look after their “pension”. The contract between employer and outsourcer is brutally commercial, typically to mange out risk at the lowest possible cost.
Somewhere along the way, the concept of deferred pay has been lost, staff in workplace pension schemes and the pensions they are due have become “liabilities”.
What about smaller companies?
Most UK smaller employers included in the 1,800,000 still to stage auto-enrolment have never run a payroll deduction system into a pension plan (even for the bosses). The idea that this is the job of an employer is not in SME DNA.
So far, auto-enrolment has been presented to these employers as a technical challenge to payroll where winning looks like not being fined by the Regulator. While the advertising to staff shows happy staff who are “all in”, there is quite different messaging to employers.
But the bulk of corporate auto-enrolment cost and risk is not about the auto-enrolment process it is about the percentage of band earnings being paid into pension plans from corporate funds.
As with larger companies, smaller companies are being asked to see pension planning as a matter of liability management. Instead of managing the guaranteed pensions sitting on the balance sheet, auto-enrolment has imposed a new set of employer duties which have everything to do with risk and nothing to do with reward.
Are the Government helping?
In policy terms, the Government are revelling in what Steve Webb – the recently deposed pension minister – called an “unqualified success story”. Auto-enrolment is being trumpeted the means that has reversed falling participation rates in pension savings and made the workplace a place where you save for the future.
But very little is being done by Government to promote the means by which this money, given up by people today, translates into jam tomorrow. There is virtually no information in the public domain that can properly monitor the progress of these great master trusts and group personal pensions that carry this new wall of saving.
If asked to comment on the comparative performance of NEST, NOW , Peoples Pension, L&G , Standard Life and Aviva (to name but six), most financial advisers would have nowhere to start. Since there are no benchmarks and no comparators, it is assumed by most intermediaries that choice is of no importance.
Since the instigation of Independent Governance Committees following the OFT report into workplace pensions and since the introduction of the Master trust Assurance Framework for multi-employer occupational pension schemes, there is an assumption that pensions will look after themselves.
So who is managing the pension providers?
With the exception of a very few conscientious employers who take the duty of choice and governance of pensions (deferred pay) seriously, there is very little being done to protect member’s interests.
Employers who put their trust in IGCs and master trust governance, are displaying precisely the characteristics that the OFT predicted.
But as those who have sold and purchased pension transfer policies, PPI and loan-orientated derivatives have found out, the consequences of mis-selling and mis-buying can be disastrous and impact much sooner than the crystallisation of the anticipated event.
What can and should be done?
We are about to embark on stage two of auto-enrolment in which over 1m small employers will set up pensions for their staff – mostly in total ignorance of what they are doing.
They will do so with the advice of intermediaries who themselves are largely ignorant of what they are doing – certainly with regards to the pension investment vehicle.
It is absolutely essential, as these intermediaries and the employers they look after approach the point at which they offer a pension to their staff, that they do so with some understanding of the pension investment.
This means training , and bulk training at that. I have written earlier this week about what we intend to do. Pension PlayPen is a very small organisation with very shallow pockets, we are being supported in our work by large organisations with an interest in ensuring a high standard of pension decision making among the employers for whom they will provide pensions.
As an independent, digitally driven organisation, we are able to help but we need to do more than we can possibly do on our own.
That is why we want to work with the widest audience of pension experts we can find, with other providers of digital guidance, with IFAs , EBCs and most of all with the providers of payroll software on whom many payroll intermediaries depend.
The big win
There is a big win in this. I have found exceptional talent, application and professionalism among the payroll managers, administrators and agents with whom we’ve worked in the last three years. They have day to day contact with the organisations that have staged and those that have yet to stage. They are trusted because they have and continue people to pay people properly.
As I started – so I’ll finish. These people who administer payroll today are the people who can manage pensions for our futures. The importance of payroll increases if this happens and hopefully this will be recognised in terms of pay and rations.
By engaging and educating and empowering those who manage our payrolls to manage our pensions we can create a lasting governance framework that can address the issue the OFT has highlighted.
Now is the time for this to happen – it will be a big win if we can pull it off – but it’s a win that I and those I work with , are determined to secure!