It’s been a week of contrasts for me
On Wednesday I spent time in the splendour of Mayfair’s Claridge’s Hotel learning how Legal and General were designing products to help people in retirement.
On Thursday I was in the Kingsley community Centre (in Cornwall) taking with 60 childcare companies about providing for their staff’s retirement using auto-enrolment.
On Friday I was on the Pension Awareness Bus in West London’s Westfield Centre talking with shoppers about what worried them about pensions and retirement. This final event was the last of a week of drop in sessions organised by Pension Geeks, sponsored by Scottish Widows, Peoples Pension and doing an amazing job from Edinburgh to London.
Trying to connect the needs of the three audiences into a common purpose is a challenge, but that’s what auto-enrolment is doing. It was good on Friday that almost everyone I talked with had heard about auto-enrolment and were either saving or expected to be saving. At Kingsley the employers had shown up to find out about their duties and there were only 2 no shows! I was impressed by the diligence of those large employers at the posh London Hotel who now have AE in their DNA.
How do you link that lot?
But I still struggle with the common purpose. For large employers AE is about delivering something abstractly called “good DC outcomes”, they are over the administrative hump and some are even re-enrolling after 3 years on the job.
The employers are terrified of getting it wrong (scared by tales of fines and confused by a new language of entitled and eligible job-holders, of workers and staging dates.
And ordinary people still see pensions as one big stitch up where nobody is acting in their interests. This is hardly surprising, they don’t think about good DC outcomes, they worry about retirement, find it hard to work out what it looks like, let alone how to pay for it and they have no idea how the saving they are doing today will solve the problems of tomorrow.
Who is accountable?
Sadly the responsibility for engaging , educating and empowering ordinary people about the workplace pensions they are joining is not something that anyone is happening. The people in Claridges Hotel are removed from those in the Westfield shopping centre in many ways and frankly – were they to be asked to sit down together in the local Costa, would struggle to have a common conversation.
More sadly still, those people listening to the Pension Regulator talk in Kingsley Community Centre, heard nothing about why they should want to offer a workplace pension or why their staff should want to join one. As for what kind of workplace pension to offer, it was as if the only criteria worth thinking about was that the schemes should “qualify” to some standard or other.
In practice, the employers in Cornwall will be dependent on the accountants of Cornwall and their payroll bureaux to get this sorted and they will have very little say in the choice of the pension . This is very worrying. Without engagement in the choice of the pension and education as to why that choice was made, employers will not be empowered to talk to staff about it in anything other than functional terms. “It qualifies” is not an inspiring reason to use a savings plan for the next 40 years.
What we are trying to do?
On Monday, I will engage with providers and accountants and bureaux and employers over the choices of workplace pensions to be offered to the 6m + staff still to join workplace pensions. The discussion will almost certainly centre around issues of “interoperability”. By which I mean how easy it is for a payroll bureau to conduct a pre-assessment, pass data to a provider for on-boarding and establish an ongoing process to comply with the auto-enrolment regulations.
These issues have no interest to the people in Claridges Hotel, who are talking the investment talk or the shoppers in Westfield, who are simply interested in saving and spending. But they are the issues on which organisations that providers are now pinning their hopes.
I am extremely nervous about this mania for interoperability. It is unbalanced and short-sighted. The things that really matter to people are to do with investment, and how they can spend their money and the security of the pension and how they can get information about their savings have to be a part of the decision the employer takes.
And there are massive gulfs between providers on these issues. Last week, a workplace pension with over 7000 members had to be bailed out by another workplace pension. That is not the first time this has happened, there have been other failures – in the past year. Another pension provider has had its approvals removed by HMRC. There is absolutely no certainty that (no matter how good its inter-operability) , a workplace pension is going to be around to pay out the benefits.
The issues being discussed in the Claridges Hotel around investment defaults, options to spend the pot and the governance of the pension ensuring plans don’t go bust, are vital. But they aren’t even on the radar of the accountants and bureaux and certainly aren’t being talked about to employers. So employers and staff have no idea why they are investing where they are.
Connecting providers and staff through employers is what should be happening and is not happening and I am very determined that the providers of workplace pensions continue to focus on providing pensions and talking about how they do this. I am very keen that accountants and payroll bureaux are focussed on how the pensions they are installing work and why they are good for members. And I’m really keen that the members who save into workplace pensions understand what is going on and are given a clear and intelligible reason why the decision that has been taken on their behalf – has been taken.
For this to happen, there has to be some engagement at every stage of the chain. The Regulator cannot assume that the bureaux and accountants they are supplying pensions through, have a mechanism in place to conduct due diligence on the pension providers marketing their ways. Without financial advice, there has to be some means for bureaux and accountants to know that the workplace pensions they are installing into their clients payroll processes work.
That decision has to mean more than “interoperability”. The workplace pension that went bust this week had excellent interoperability, it just didn’t have a sustainable business model. There are workplace pensions we have researched that simply are not fit for purpose in terms of their investments and their governance and the services they offer their membership. They may not be on the Pension PlayPen’s platform but they are being offered by accountants and bureaux as “qualifying workplace pensions” that meet the Government’s criteria for auto-enrolment. Like the master trust that went bust this week, these schemes are doing nothing wrong.
There must be engagement , there must be choice and there must be a means by which informed choices are made. Without engagement, choice and engagement, there can be no empowerment of people. Would you save more into something which you knew nothing about? If you asked your boss why he chose to invest your money in a 40 year savings plan and he had no idea, would you hold your boss in esteem? If you went to your bosses advisor/accountant/payroll office and asked why the workplace pension you were investing in had been chosen … and they couldn’t answer you.
What would you think?
This is a great game of pass the parcel in which everyone is passing the choice of workplace pension to another contestant. No-one knows who will end up taking responsibility (though the rules say it is the employer).
I do not think that those last Wednesday in the Claridges Hotel should be sitting comfortable. Unless people who choose the providers workplace pension make that choice on an informed basis, those encouraging that choice may be guilty of mis-selling.
Nor do I think the advisors accountants and payroll agents advising the employers of Cornwall should sit comfy, for their clients know nothing about the choices ahead of them.
And especially, the employers relying on providers , advisors, accountants and payroll agents- should not be sitting comfortably. For the are ultimately accountable to their staff.
In short, we need to move beyond the bare bones of “interoperability” and start talking up the reason why we are doing this auto-enrolment thing in the first place. That is the investment of billions of pounds worth of pay, deferred for anything up to 40 years before it can become spendable.