In a spectacular piece of reporting, the FT’s Josephine Cumbo has exposed a structural weakness at the centre of Auto-Enrolment;- the failure of the Pension Regulator, the advisory trade bodies and the FCA to provide proper guidance to our 1.8m employers on how to choose a workplace pension
It now appears that even the DWP’s Pension Minister has blown her lid on the shocking lack of guidance and the misleading information emitting from the Pensions Regulator.
The UK Pensions Regulator is facing demands from the pensions minister to do more to protect low earners at risk of being enrolled into pensions that deny them tax relief.
As the government’s automatic enrolment policy enters a critical phase, Ros Altmann has written to the regulator demanding it improve its guidance for employers looking for a pension for staff.
The minister’s concerns centre on the information provided by the regulator to help millions of employers choose a pension to meet their new automatic enrolment duty.
Baroness Altmann told the Financial Times the regulator was not providing clear enough risk warnings that some pension schemes deny tax relief on contributions made by low earners.
“As pensions minister, I have a duty to ensure that low earners are treated well,” said Baroness Altmann, who was a high-profile consumer campaigner before being appointed to her ministerial post in May.
“My fear is that unless the guidance is very clear then employers — many of whom will be small employers acting without the help of advisers — may inadvertently choose an arrangement for low-paid staff, without realising the consequences.”
The minister wants the regulator to make its guidance explicit that “net pay” arrangements do not have a mechanism for those earning below £10,600 to claim tax relief they are entitled to on their contributions.
This is in contrast to pension schemes operating “relief at source” arrangements that enable the same low earner to benefit from tax relief at a basic rate, which helps build their retirement pot.
Baroness Altmann said she had raised her concerns many times with the regulator.
“I am frustrated that as pensions minister my concerns have not been taken seriously,” she said.
“The guidance for employers needs to be in plain English and clearly explain the implications of using net pay arrangements for low-paid staff.
“I want this done immediately.”
The minister’s concerns grew after the regulator last week announced it had added another net pay pension plan to its list of approved schemes that had met quality standards.
However, the scheme, now promoted on the regulator’s website, does not make clear in its online marketing communications to employers and employees that low earners will not receive tax relief.
“The letter templates made available to support employers in communicating with their employees are based on guidance from the Pensions Regulator,” said Gillian McKillop, secretary to the trustees of the Welplan pension scheme.
You can read the whole article here.It is worth the price of this month’s subscription on its own!
Welplan and NOW – in dereliction of duty?
Well I can confirm the point about Welplan. Those lucky enough to be in last week’s Payman seminar in Frome church hall will remember me chairing a debate where both the providers – Welman and Now used net pay. I had to make it clear to the audience that neither offered tax relief to those earning under £10,600 pa.
The way that auto-enrolment works, those who have earnings spikes that take them above the £833 pm minimum earnings threshold become eligible workers even if their earnings for the year are well below the £10,000pa threshold. For those earning on a weekly basis, the likelihood of their being sucked in is even higher.
At the meeting both played down the issue as a minor technicality. Let me tell them, those who miss out on 20% of their contributions will not see this as a minor technicality!
It shouldn’t be down to the FT and Pension PlayPen to deal with this!
The FT have clearly spoken with the Pension Regulator who have confirmed
“We plan to make amendments to our website content shortly, including a revision to our employer letter templates to point out the government ‘may’ pay in, rather than ‘will’ pay in.”
It is high time that Lesley Titcombe got me down to Brighton for one of the Monday morning AE pow-wows and got me to explain!
People want certainty, they need to be told which providers are giving tax relief to everyone and which just give it to those who pay tax. Misleading statements such as that in the letter template or the statement “you only get tax relief if you pay tax” are lazy, misleading and were they to be made by an FCA regulated entity – would get those who made them into a great deal of trouble.
“On pension choice- they’re as much good as an inflatable dartboard”
MAF is not going to sort this out, nor its architects -the ICAEW and tPR.
The ICAEW has been faffing for two years to say anything meaningful on workplace pension choice and the Pension Regulator- admirable as it is on auto-enrolment, is all over the place on workplace pensions.
The reason is there’s not one Pension Regulator in charge of workplace pensions, but two. The Auto-Enrolment regulator knows a lot about process but very little about pensions, the DC regulator, knows a lot about pensions and very little about auto-enrolment.
Pension choice falls down the crack between their two buttocks.
It’s the DC regulator who is behind the MasterTrust Assurance Framework (MAF – which is silent on issues such as the communication of tax warnings. But the Auto-Enrolment regulator, is relying on MAF to sort everything out. MAF is now recommending NOW and Welplan because they have jumped through the ICAEW and tPR’s hoops.
If employers think that MAF gives them safe haven status then they should think again. If I was a low paid employee enrolled into NOW or Welplan and I missed out on tax-relief, I would be asking serious questions about the guidance my employer got when choosing that scheme.
If my employer pointed to these schemes being promoted on the Pension Regulator’s website because they had MAF accreditation, I would be asking serious questions of the Regulator.
Shape up, outsource or insource!
It is high time that the Regulator offered proper guidance on how to choose a pension scheme or provided access to someone who can. If the DWP wants to nationalise the Pension PlayPen, we are open to offers.