This is an edited version of the keynote speech I delivered to the CIPP conference this morning (October 7th 2015).
I blog as the Pension Plowman, and my blog is called the vision of the Pension Plowman.
You might think it is pompous for me to talk about my vision – like I was a visionary –
But I don’t share that view – I think everyone should have their vision.
I want to make my vision clear.
I want to help restore people’s confidence in pensions
Some years ago, the CIPP had “pensions” in its title
then you swapped pensions for professionals-
a smart move in my opinion!
Today you are a force to be reckoned with. When the Pension Minister consulted with key stakeholders over auto-enrolment
it was the CIPP who got the place at the table not the NAPF or the PMI.
Your CEO has the ear of the Treasury and FCA…for his work on Credit Unions;and the ear of the DWP and the Pensions Regulator for the CIPP’s thought leadership on auto-enrolment.
Through Friends of Auto Enrolment ,you are helping to bring payroll and pensions back together, you are integral to avoiding the capacity crunch which looms from early next year.
You are (at least in my vision)the Chartered Institute of Payroll and Pension Professionals.
We know what payroll can do for pensions,
you make sure employers can compliantly operate auto-enrolment …..
and that members get the right money into the right pension pot
at the right time.
You help organise people to opt in and opt out of auto-enrolment
and you will have an increasingly important role,when people come to spend their retirement savings, in paying their money back
Pension people are beginning to work out how important you are!
But what can we do for you? We can give you our jobs!
Traditional pension experts are in decline. The number of IFAs in this country has fallen from 50,000 to less than 30,000 since the Government stopped us getting paid commission.
As defined benefit schemes decline, the numbers of pension managers, trustees and consultants has also fallen sharply.
In sharp contrast to the fortunes of the CIPP, our trade bodies struggle, and our old certainties are under threat.
18 months ago the Chancellor gave everyone the chance to spend their pension savings – how they liked. We’re still in shock!
On the 25th November we expect to hear the outcome of the Treasury’s consultation on tax relief. I will wager that by the end of this decade, workplace pensions will be operating on a system of TEE , and I am a betting man.
Apart from defined benefit schemes, we will be taxed on our pensions like we are on our ISAs
Prepare for the power of Pisa – Pysa – the Pension Isa!
These changes will present fresh challenges to payroll software providers , agents
and managers.But unlike the pension profession, (who are vehemently opposing change)
the CIPP reckons these changes will be positive for payroll.
That’s because payroll deals with everyone the same.
The current pension system rewards higher rate tax payers disproportionately
and offers progressively less incentive, the lower your income.
Indeed, as we now know, there is a class of employee who (under the net pay system) is excluded from tax incentives altogether. Pensions have never been for all – for decades good quality pensions have been a “perk”.
But over the next five years payroll will bring over 5 million new employees into workplace pensions and most of them will be at or below median earnings.
Unlike pensions, payroll is fiercely democratic, everyone gets paid and paid properly.
It is part of my vision that everyone gets pensioned ….and pensioned properly.
Add to this the benefits of a simplified intelligible state pension and we have the foundations for my vision.
We may have the foundations but the building is still under construction!
The Pension Freedoms are here butwe have not found an adequate replacement
for the annuity. We have no default means to pay people back the money they have saved.
Traditionally we use the pensioner payroll. My firm still pays upwards of 30,000 pensioners their lifetime rights to a defined benefit each month
But these numbers are diminishing – slowly! In the short term, occupational pension schemes are doing their job. But – apart from in the public sector- they will lose their impact as pensioners die and new pensioners are fewer and less well pensioned
We cannot rely on defined benefit pension schemes for ever.
Nor can we rely on annuities. Annuity sales have fallen through the floor. Some people say that people will pay themselves through income drawdown.
But of the first 220,000 people using the new pension freedoms, less than 20% have set up an annuity or a drawdown policy.People are liberating their pensions but they don’t know what they can do next!
People know what they want to do. In a recent survey of 4000 people in their 50s, Aon asked “how would you like your retirement savings paid?”
62% described the workings of a pensioner payroll Clearly we have to find ways to pay people collectively. As we help them save collectively
Payroll’s boring, pensions are boring, work is boring- there is a natural synergy there!
One thing that links it all – is payroll.
Whatever the new pension taxation system will look like, it’s implications for payroll processing will be profound. Because it will be simplified. There is a mountain of pensions legislation around tax.The last time we tried to get over that mountain (in 2006) HMRC got half way up and stopped!
To properly simplify pension taxation, and harmonise it with ISAs – a system that is simple and intelligible payroll will have to put in a huge initial effort.
Software will need to be recoded
People will need to be re-trained
And payroll will be at the heart of these changes. It’s a massive opportunity to shine
And then there’s auto-enrolment!
The staging of the remaining 1.8m un staged employers and the 250,000 new employers born every year, is a matter of national importance
We are building a platform on which everyone can save.
The amounts saved start small But they will grow in a couple of years. And are they likely to continue to grow as we move into the next decade.
Everyone from the DWP and the Pensions Regulator down is counting on payroll
Payroll is the radar for fraud and malpractice.
Payroll knows which providers you can work with and which you can’
Payroll makes choice possible by helping pension providers stay in the market
Payroll is encouraging new entrants.
Payroll is adopting the API technology now being offered by NEST, L&G Peoples
and many other providers.
Payroll’s creation of the data standards PAPDIS and PAPDIS 1 and the innovation from Pensions Bib has encouraged pensionsync, and aeExchange to radically reduce processing times
There is much more we can do. Three years ago, a group of us went to Steve Webb
led by Karen Thompson It included both payroll and pension experts
The minister was impressed. The initiative got substantive changes to AE legislation,the changes making it easier to operate AE without compromising the interests of members
When Pension and Payroll people work together they are most powerful
We now have the chance to do the same for smaller employers, making the language simpler, the processes less complex
And we should lobby for larger employers re-enrolling. We should lobby for the right to postpone re-enrolment as we postponed staging
These are some of the things that we are doing together. to build the apparatus to help people to a better retirement.This building is part of the vision.
It is not right for pensions to rely so heavily on payroll but to share so little of the reward.
There needs to be a fundamental shift in the value chain. You need to get paid like us!
But payroll still has its own mountain to climb!
Employers have a duty to choose a pension. A duty to their staff – their workers. That means making an informed choice – not being herded into a sheep pen and branded- “NEST” “NOW” or something similar
Payrolls that dictate what employers should do are taking big risks. I remember financial advisers took a cavalier attitude to what their customers were buying when they mis-sold endowments and pension transfers.
The reason why people trust payroll is that they haven’t been involved in scandals. You have behaved impeccably – don’t spoil it now!
That means seeking out the providers of digital due diligence. We have to make sure there is informed choice on right pension for the employer and staff-and not just the right pension for the payroll bureau!
For the payroll industry to prosper, it needs to climb the mountain
Payroll should not be the retiring cinderella to pension’s ugly sisters. Payroll should be at the ball and be the star of the ball.
For as the number of pension experts reduces, a vacuum emerges. Those with vision in payroll
– people like Kate Upcraft, Karen Thompson, Alex Rowson, Simon Parsons and Lindsay Melvin
have seen the opportunity for the payroll industry and reached out.
There have been some in pensions- and I point especially to our good friend Andy Agethangelou – have responded.
My vision for payroll and pensions is that we stop treating each other as rivals and and work better together as partners.
So where do we begin?
Over the next three months I will be spending the majority of my time with payroll agents… and the practice partners responsible for payroll.
Accountants are accepting that in the absence of pension experts, they need to empower their bureaux to manage pension matters
The next stage is to convert those payroll agents responsible for the majority of the 1.8m employers still to stage auto-enrolment, into pension managers.
We need a proper partnership between pensions and payroll practitioners
to deliver auto-enrolment,- a fairer taxation system
and a means to help people spend their pensions