The Pension Regulator has published its new DC Code, a hefty tome in itself (38 pages). It has published a further six guides which collectively run to a further 130 pages. If you were to spend the rest of the summer reading the enforcement codes, the consultation on the 21st century trustee and the various documents that surround these (consultative), the summer would have been lost.
I haven’t read all these documents but I have read an excellent piece in Corporate adviser from which I capture this section
TPR says the code sets out the standards that pension trustees need to meet to comply with legislation, and says issues relating to tax relief are flagged up elsewhere on its website.
Hymans Roberston says schemes that do not appoint advisers will struggle to meet the requirement in the code to achieve value for money.
Former pensions minister Ros Altmann says: “It is an outrage that the interests of the lowest earners have not been looked after prominently in the new DC code. They have a an entire section on administration and nothing on low earners.”
For a document so long to be criticised for what it is omitting seems odd. But when you look at what Ros Altmann is outraged about, it’s hard but be amazed.
For all its attention to detail, this code makes no mention of the duty of care trustees should have to the estimated 180,000 members of net pay occupational schemes who fall into a tax trap meaning they lose out on the Government’s incentive to low earners (available to those in relief at source schemes).
The incentive may not sound a lot to those in the money, but to those on minimum wage, on zero hour contracts , for those trying to get out of benefit dependency, £125 pa is a lot of money. £10 pm is a lot of money, £2.50 pw is a lot of money.
It is not a matter of Government policy that those earning between the Automatic Threshold and the new nil-rate band should be excluded from an incentive of up to £125 into your pension. You get it if you are in occupational pension schemes such as NEST and usually from People’s Pension and Super trust. You will get it if your workplace pension is a GPP or even a SIPP.
But if you are in one of what tPR still call an “occupational money purchase” scheme sponsored by a large employer, or in a master trust other than Peoples, NEST or Super trust, you won’t get the incentive. It’s a lottery and the rules of the lottery are written by the occupational schemes.
At the Trustee’s discretion
Trustees are supposed to act for all members of pension schemes and to do so fairly. As the new code demands.
So how can the code not refer to tax-relief and Government incentives? They are how we get value for money from pensions, without tax relief we might as well stick the money in an ISA or in a bank account (where interest is tax free and the money can be easier spent).
The trustee’s have a duty of care to low-earners which should extend to ensuring that they get the Government incentive. Trustee’s should be regularly reviewing the workforce assessments done to establish scheme membership and identifying which of their members are at risk of receiving no incentive. Those identified should either be put in a scheme with an equivalent contribution that provides relief at source, or the existing scheme should have a section operating under relief at source.
Instead of kicking up a fuss, the trustees of occupational pension schemes have generally ignored this issue. Some have told me it is a temporary problem which will go away with the reform of tax relief (now in the long-grass), others have said they are waiting for changes in administration technology but most have told me they are waiting for guidance from the Pension Regulator.
Well we now have the new DC code and it doesn’t mention tax-relief at all.
A sorry history of painful precedents
I am afraid that this is not the first time that occupational pension schemes have prejudiced the interests of their poorest members. Until quite recently it was possible to have the majority of your pension docked by the state pension offset, this was a means by which occupational schemes would take into account your state benefits when paying your company benefits, this hit poor people hardest and has rightly been taken out of most scheme rules as patently unfair.
Another area of unfairness was the vesting period; vesting periods (originally 5 years , latterly 2 years) meant that if you left within these time periods, you lost your right to the company contribution. Poor people lost twice, not only did they get contract protection granted the more senior staff, but they were often dismissed within the vesting period to ease the financial strain on the fund. Staff turnover figures for those on low earnings are proven to be much higher than for senior employees.
Finally, many occupational schemes were designed to exclude the lowest earners altogether by operating minimum earnings thresholds before an employee could be considered or – worst of all, by simply excluding certain grades of employees from pension provision altogether.
The abuses have gone but the culture remains
The institutional bias’ that existed within occupational schemes (of which the above are just a few examples) have been removed. Progressive legislation in the UK and abroad has seen fairer treatment for the poorly paid (typically women) removed.
But as with the case of the WASPI women, those caught in the net-pay trap reminds us that the cultural bias to the high earners , the men and those with long-term contracts has trumped the rights of short-servers, low-earners and – by bias – women.
The culture that created those biases persists. This is why trustees have not been proactive in putting to right the wrong done to the low-earners. There are exceptions (NOW pensions is the main one- which is doing something to protect the interests of those affected). But for the most part, occupational trustees have and are sitting on their hands.
Despite the efforts of Ros Altmann and a few pipsqueak voices such as this blog, the Pensions regulator has written a DC code that makes no mention of the trustees’ duty to ensure members get the tax-relief and Government Incentives, they are entitled to.
That is a legacy of our dark and despicable culture of prejudice against the poor. The Pensions Regulator needs to take immediate action and make sure that trustees protect their most vulnerable members who are currently *unwittingly” getting ripped off.
If they don’t , it will be down to the ambulance chasers- who will reap their usual damage.