Auto-Enrolment must learn from WASPI

 

Pension AE

spelling it out!

Over 100,000 people have signed the WASPI petition demanding that Government review the increases in state pension age for women in their fifties.

I admire the WASPI women for bypassing  the usual channels and  making  their point directly to Government. They’ve proved that using social media, they can do it yourself.

They were spurred on by the lack of engagement from the pensions industry in women’s rights – not least the right to be kept informed. The  knowledge of our complicated pension system is in the hands of a  small number of civil servants and pension experts and  they could be argued that WASPI’s grievances are as much the problem of the pensions industry as the DWP.

I am sure that most advisors would see no public service obligation in their work, their job focusses on the needs of those who pay them and does not extend to telling the general population about changes in the state pension. I’d agree with them.

There is an important issue at stake here. The private sector has no obligation to explain public policy except where the terms and conditions with which it engages its clients include a promise to do so.


 

Many financial advisers, accountants and payroll bureaux are currently extending their terms of engagement and client agreements to include the management of their client’s pension auto-enrolment.

Inevitably, small employers with no previous experience of pensions, will demand help with the selection of pension provider and ongoing management of the relationship with the provider.

For many advisers, accountants and payroll bureaux, the recommendation of NEST as the default pension provider is deemed a means to by-pass this responsibility. The argument goes that as with the state pension , it really is none of the private sector’s business how NEST performs  – “that is the Government’s problem”.


 

If only life were that simple.

Employers using NEST are urged to read and agree to NEST’s terms and conditions. In particular they should be aware of Pages 7 and 40 as these assert the right for NEST to directly charge employers for the use of NEST.

Specifically we read  (p7)

The Employer will make such payments to the Trustee …as may be payable by Employer under the schedule of employer charges which the Trustee determines to be payable in order to recover from Employers the costs of the administration and management of the Scheme which the Trustee determines to be attributable to the acts or omissions of Employers.

The schedule of employer charges (p36) states

NEST can charge employers to recover administrative costs caused by them. For example, we may incur a cost if an employer doesn’t pay contributions in full, on time, or doesn’t pay by Direct Debit. Currently we’ve decided not to use employer charges but we may do so in the future.

NEST has not got a bottomless resource to bail out maladministration. It has already drawn down two thirds of its £600m loan from the Government and the administrative strain of the next three years makes it highly possible that NEST will have no alternative but to charge employers for poor administration. The National Audit offices’s otherwise highly complimentary report on auto-enrolment (and NEST) included a note of caution on NEST’s profitability calling on the DWP to

review NEST’s role in the market and its impact on competitive restrictions, and continue to review the long-term sustainability of the current funding arrangement.


 

Cuckoo in the NEST?

The DWP should not rely on private sector advisers to issue warnings on the sustainability of NEST’s pricing structure, nor should they allow NEST to continue to promote itself as “free”. (Several tweets were spotted on NEST’s twitter feed over Christmas saying just that).

The two lessons that we all should be taking from the WASPI campaign are that

  1. People cannot be relied on to find out about Government policy from the private sector
  2. People expect to be told the whole truth by Government

The DWP should review its promotion of NEST. Currently people are reading the twitter headlines and not reading the small print of the Terms and Conditions.

Advisers, whether IFAs , accountants or payroll bureaux, should be pointing  out to their clients that NEST may be free to use today, but could prove expensive tomorrow.

They should also do as the Pension Regulator requests and point out that- unlike the state pension NEST is not the only option – other workplace pensions are available – (which may be better)!

For – unlike the WASPI women, employers will have terms of engagement letters to turn to. Advisers, not the DWP, may be in the firing line – should NEST not remain free,

 

 

 

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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