I am very excited.
I’m excited because I am at last seeing a way to get information on pensions to the people to whom it matters, ordinary people including the small employers who have currently little access beyond that they get from their workplace pension provider.
I’m excited because I can see this information being brought together with the help of trusted sources, typically the payroll software providers and their distributive networks.
And I’m excited as I can see high quality information being available to employers, their business advisers and so the ordinary people who currently are getting little independent help with their pension savings.
In the generality
I of course exclude from this those larger employers who have always had the advisor and the mechanisms in place to keep staff up to date on their workplace pensions.
And I exclude that reasonable slice of the population who proactively seek out information on their pension planning, often consulting financial advisors.
But “in the generality”, I am talking about the majority of the population who find themselves saving for retirement in schemes set up for them as a result of the auto-enrolment project.
Delivery of a utility
The project which I and my colleagues are creating has certain key deliverables. We aim – through our work to achieve the following.
- To allow employers, their advisers and all their workers, to see the value of their workplace pension, the money they are paying for that value and hence work out if they are getting value for money.
- To allow employers who feel their staff are not getting value for money, to remedy that situation , either with the workplace pension provider or – should negotiations fail, by appointing a new provider
- To engage employers and their advisers in the specific pension issues relating to their circumstances by targeted mailings regularly sent
- To engage employers with the formal aspects of governance by sending quarterly governance reports on their provider and distributing the annual report of their Independent Governance Committee or Chair of Trustees statement.
This great enterprise cannot be completed through the existing channels , since there is no independent mechanism in place. We will need to create a public utility that can source the data needed to produce “value” and “money” scores and to provide the narrative people need to follow the progress of their pension monies.
We envisage that this public utility will be – like the pension dashboards – created in the private sector and run commercially. On the premise that information should be free, the cost of this service to employers will be little more than a subscription to a trade magazine.
But the application of technology can mean that what employers can see and pass on to staff will have a specific value that currently is only enjoyed by much larger employers paying annual fees running into thousands of pounds.
The platform already in place
Over the past five years we have seen great advances in the development of workplace pensions.
- There has been a concentration of providers around at most 20 leading suppliers
- The top 20 contract and trust based workplace pension providers produce high quality governance information
- Data is readily available from the investment managers they employ sufficient to analyse value for money
- Independent research and ratings on quality aspects of workplace pensions are available through portals such as defaqto and www.pensionplaypen.com
- This information is accessible to small employers at a minimal price, a price which is set to drop very fast as scale increases.
Demand is catching up with supply
Much of the information currently available is not looked at by those for whom it is intended. To the frustration of those who take great care over their work as IGC and Trustee members, their reports are little studied. We intend for these reports to become matters of general interest to employers and we want to use this independent work to restore confidence in pensions among those who are saving.
The experience of other countries engaged in mandated savings is that engagement with pension matters starts when the savings become meaningful and are nurtured by real, vivid and genuinely impartial information on the investment of their savings.
On this last point, we are encouraged by the increasing realisation among fund managers that environmental, social and governance matters are not just of importance to performance, but a way to get engagement with investors (especially younger investors).
The time has come
Employers will from April next year, be required to increase the contributions to auto-enrolled pensions from 2% currently to 5%, the contributions increase to 8% of band earnings from April 2019.
At the same time – many employers will be re-enrolling staff after the first three years of auto-enrolment. These are natural break points for them to reconsider how their pension is working, whether it is offering value for money, operational efficiency and whether it is hitting the mark with its staff.
Our timeframes for delivering this utility to the natural distributors of this information is no later than April 2018.
The distribution is in place
There is no need to create a new way to talk to employers. The existing channels are in place. Employers get their business information through their accountants and directly from their software providers.
Indeed accountants rely on software updates even more than employers.
Since this information is digital and the digital networks exist, it will be necessary only to win the confidence of those managing the networks.
Of course there needs to be a commercial case for them to do so, but we should remember that the continuing success of auto-enrolment as a means to provide people with deferred pay, is in the interests of those managing payroll software.
The enterprise moves apace
I feel more energised by this work than by any I have carried out in the past five years. The setting up of the auto-enrolment infrastructure is now mostly in place. Increasingly payroll is able to manage the BAU AE process using API technology which massively reduces the burden. Auto-enrolment is becoming business as usual.
But the understanding of the workplace pensions that are supported by the infrastructure is still in its infancy.
The new platform to deliver real independent information , of which I talk, is taking shape under our eyes and I hope that by the end of this decade, engagement with workplace pensions will be greatly increased.
It will not of course be universal, but we can get to a tipping point where employers consider it is part of their duties to take care of the workplace pension.
That should be the next objective of the great auto-enrolment project. For if we cannot see the point of saving, increasing savings to 8% or beyond, will proved difficult.