Data should drive AE reform in 2017

data reform

We live at a time dominated by data. Never before has data been so readily available to policy makers. But with so much about, it’s the job of those at DWP and tPR to sort out what’s relevant and what’s not – to look at the real time information they have on auto-enrolment and make decisions on what people are – or aren’t doing.

Of course the Government doesn’t have an exclusive on what’s going on, infact many employers would rather keep their affairs to themselves and – should they use technology – use proprietary tools belonging to payroll software houses, middleware suppliers and insurers. My firm’s been collecting data since 2013 and has now a dataset of over 2500 employer decisions on pensions and more than 6000 decisions on contribution structures (taken after workforce assessments).

This represents around 2% of the market;-in a fractured market , it is a significant data set so we’ve been looking at what our data is telling us and we draw three conclusions which we reckon inform on the debate

There is an auto-enrolment review coming up next spring and here are three ideas that spring from our data. They seem logical and I hope they will be given proper consideration as we will be forwarding them to the DWP as part of its consultation

  1. There is virtually no diversity in the decision making of employers around AE contributions. Over 92% of employers using our workforce assessment tool are using the band to pay contributions against , are using phasing and are setting employer contributions to the minimum. We have seen a steady increase in this number suggesting it is the default setting. Frankly we would happily abandon the basic pay and gross pay formulations and work to the default and we’d suggest that the Government consider doing just this.
  2. Our data suggests that workforce assessments are being conducted exclusively on data drawn from payroll. We are seeing visually no manual adjustments to reflect personal service workers who may be eligible but are not being offered a contribution or access to a workplace pension. Whatever the Government’s intentions, the reality is that if a worker is not being paid via payroll, they are not being enrolled. The Government should consider the implications of this. If they wanted auto-enrolment to be the spur to dealing with their problem with contractors, it is not working. Either the Government is going to have to toughen the rules or abandon personal service workers because the current situation is not working.
  3. The use of our choose a pension service suggests that when offered an informed choice, a much lower proportion of employers choose NEST than when they are left to choose a pension without guidance. Our numbers suggest that NEST is right for a high proportion of employers (probably around 40% but that it is only being used around 20% of the time). That is not because NEST appears to be inappropriate but because a high number of employers – when choosing -find providers that are more appropriate. We would urge Government to encourage choice – both the ensure a proper audit trail to future-proof the decision and to ensure that the employer is engaged with the pension decision.

As has often been noted, the long-term success of auto-enrolment depends not so much on employer compliance but on the outcomes to members. Those outcomes depend above all else on employers and members wanting to contribute more to “Workie” than the bare minimum.

We hope that the Auto-Enrolment review next year will shift the focus from compliance to engagement. We are in the middle of what has been referred to as the capacity crunch. We are not buckling, indeed the compliance system is working well. But auto-enrolment has not won the hearts and minds of its participants (as “Super” has in Australia). It took several years for the Australians to accept compulsory pension savings, but now they have, they regard their pension pot as one of their key assets.

That’s what needs to happen here!

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in auto-enrolment, pensions and tagged , , , , , , , , . Bookmark the permalink.

2 Responses to Data should drive AE reform in 2017

  1. Duncan S says:

    The trouble with all this data and the analysis of it, is that it can sometimes lead us down the wrong road! The fact that 92% of Employers are using qualifying earnings might have a lot to do with it being generally the cheapest option as opposed to a sensible basis on which to calculate minimum contributions. I would opt for abandoning band earnings in favour of the more logical base and gross pay options!

  2. henry tapper says:

    Maybe the answer is that people will default and that choice in matters such as this is not important. The principle is the clustering of behaviours which should lead to a simplification of the choices, like you I’d like to see a £1 up approach .

Leave a Reply