Are all Workplace Pensions the same?
Can we distinguish one “Workie” from another?
Are all Workies equal – or are some Workies more equal than another?
For those not familiar with the adverts- Workie is a Technicolor creature, designed by the DWP to make employers aware they should not ignore the Workplace Pension.
For employers Workie can be a nuisance. Installing a workplace pension presents a series of challenges for payroll. Managing the rhythms of auto-enrolment demands not just adherence to process but a tolerance of third parties that simply don’t get payroll.
How employers judge the value of the workplace pension they have established is largely through feedback coming from payroll.
The “member experience” is for the moment secondary. This however is likely to change over time. There are three reasons for this;
- As managing the workplace pension becomes “business as usual” , the initial strain should diminish. Over time – Workplace Pension should also get better at understanding payroll’s needs .
- As member contributions phase upwards in 2018 and 2019, members will pay more attention to the pension, some may opt-out, others will start asking whether they are getting value for their money.
- As member’s pots increase in value, people will start seeing their Workie for what it might give them later in life- rather than a payroll deduction. Pension Freedom helps people think of their pension pot as something to look forward to and value.
The member’s perception of what makes for a good Workie will be based on what the Workie offers in terms of “interest” (technically investment growth), how easy it is to spend Workie’s pot at retirement and how much is taken from the pot to as management fees.
These are the measures of Workie’s outcomes and will eventually be the measures by which workplace pensions will be judged.
So much for the future – what about today?
In the short term employers and their business advisers are determining who are the winners and losers among workplace pension providers .
Pension PlayPen surveyed over 100o employers and advisers about their experience of working with the leading workplace providers. You can read the full survey by copying this link into your browser http://goo.gl/mhlrm8
Just under 150 respondents had sufficient time to fully complete our survey, (adjudged a statistically significant sample).
There was consistency among business advisers about which providers were cutting the mustard.
And consistency among employers about what they considered important in selecting a workplace pension.P
What this tells us is that those Workplace Pensions that are cheap and easy to set up and run, are more valued by their purchasers (the employer) than those that promise better member outcomes.
It seems that in the first three years of auto-enrolment, employers have used a large number of workplace providers .
Although NEST is most used – it is not the clear market leader by use. Instead we see employers and business advisers choosing pensions on the basis of ease of use, cost of set up and on going support.
This represents a healthy advance on the situation described by the Office of Fair Trading in 2014.
“The buyer side of the DC workplace pensions market is one of the weakest that the OFT has analysed in recent years”.
But not everything in the garden is rosy.
Although employers (mainly through their advisers) appear to be making rational purchasing decisions, members investing their salary may feel their outcomes are being ignored.
Employers may consider that a workplace pension that works well for payroll will probably deliver good member outcomes and they may well be right.
But there are nagging doubts. The Pensions Minister spoke passionately at a TUC pension conference about problems with net pay taxation and the low paid. The Pensions Regulator has expressed concern that small master trusts that do not adopt the Master Trust assurance framework are all but unregulated ; and we’ve found clear evidence that pension fraudsters are eying up auto-enrolment cash-flows for “liberation”.
Employers need to be wary of choosing workplace pensions on cost and ease of set up. It is much harder to judge providers on their investment merits but a purchasing decision that ignores “member outcomes” is leaving employers (and advisers) vulnerable in future years to criticism.
While neither employers nor their advisers can be responsible for the investment performance of their chosen workplace pension , they should be careful to leave an audit trail when they purchase that shows that proper attention was paid to the member’s pension.