I hear a lot of DB experts at conferences talking about transferring their “skill-set” for the benefit of DC savers; they want to transport their language – diversified growth funds, liability driven investment and glide-paths into the lingua franca of the DC saver. They are interested in the creation of synthetic annuities and they advocate we study behavioural economics. They have ways of controlling the herd of us DC savers using default investments, contributions and decumulators.
These people are so far from the thoughts and aspirations of ordinary working people and even to the bosses participating in workplace pensions, who know little to nothing about such things. They don’t need to transfer their existing skill-set, they need to learn a new set of skills. They might consider the job of a Costa Coffee Barista,
The arrogance of these people in supposing the world should follow them is breath taking. This is the generation of advisers who has turned DB from a great British Success Story, to its current state. They have found no alternative solution to the issues of our living longer, our desire for certainty and our financial ineptitude than to transfer all these risks away from organisations who can share them onto individuals who most certainly don’t understand them and can’t manage them even if they do.
Technical superiority makes me spit with rage
There is nothing that so riles me as when these experts preach to us about some pension technicality which we don’t get, when the bigger picture is that there is a world of unfairness the technical experts are happy to persist.
I see this in the WASPI debate, I saw it in the arcane arguments played out by barristers in the Royal Courts (re ARK) and I saw it again yesterday.
It was Lesley Williams , former chair of PLSA and head of pensions at Whitbread who first pointed out to me that non-tax payers cannot get tax-relief. Whitbread own Premier Inn and Costa Coffee – hence my tagging baristas.
The same comment was made on my blog yesterday. It is a comment that is technically right but wrong from every other perspective.
Let’s be clear, when the Government announced the auto-enrolment contribution scales, they very properly laid it out like this;
The employer pays 3%, the worker plays 4% and the Government pays 1%.
The 1% the Government pays is not tax-relief, it is an incentive for people to participate and is open to non tax-payers as well as tax-payers. It may be thought of as tax-relief by the PLSA but it is a right for those who save , not those who pay tax.
We are in the process of disincentivising a whole raft of people who are saving (often for the first time) into pensions by simply not keeping our promises. Those people may not have found out yet, but they will. When they do, don’t expect them to be quiet. Let me explain…..
When Auto-enrolment was first mooted back in 2005, the nil rate income tax band was close to the auto-enrolment contribution threshold. Since then the AE threshold has lagged meaning many people are enrolled when they pay no tax. When low-earners have an exceptional pay period (overtime, bonus etc.), they become eligible for auto-enrolment for that pay period and – unless carefully managed- they may find themselves enrolled for good (unless they opt-out).
For these reasons, a very large number of non-tax-payers are currently in workplace pensions “unconsciously”. Some more choose to be in pensions because they are entitled to participate in an employer’s scheme or because – while not eligible to be enrolled , they are both entitled to be in a scheme and eligible for an employer’s contribution.
Technically, employers are under no obligation to make sure that these non-taxpayers get their incentive, but the moral superiority of these experts in denying low-earners the right to it (on the grounds that they are not tax-payers) is despicable.
That the PLSA , the PMI and the other leading pensions trade bodies have failed to champion the iniquity of low-earners being denied what the Government is offering them is frankly a dereliction of their stated aims. As I wrote yesterday, low-earners are least served by the current system of tax-relief.
The current system allows high earners to get a tax-rebate at up to 45% of earnings, more than twice the Government incentive being denied so many low earners. The vast majority of tax-relief goes to high-earners because they have the net disposable income to fund pensions to the max. While the Government has trimmed some of these tax-perks, they still prevail for most of the pension rich.
It is despicable that years after the “net-pay” problem emerged, large occupational schemes and many multi-employer workplace pensions continue to take contributions from non-tax payers and not credit them with the Government incentive.
I do not buy the argument that setting up systems to operate under the “relief at source” regime is not cost-effective. NOW pensions have campaigned for a work-round and – not being successful – have paid the incentives for the Government (it being a net pay scheme). In the meantime, the large occupational pension schemes that deny low-earners their incentive have twiddled their thumbs and relied on the “if you don’t pay tax, you don’t get tax-relief” argument.
It’s specious, bogus , arrogant and despicable and that – to me – is indisputable.
So who is championing the low-earner?
The answer is not the unions, who seem to be disconnected with DC pensions if they aren’t called NEST.
The answer is a Tory Baroness called Ros Altmann.
Whether you like or loathe Ros, you cannot deny that she has consistently championed the rights of the low-earners to get their promised incentive.
I applaud her for this and will use this blog to back her up. It is absolutely ludicrous that large employers and workplace pensions (operating under the master trust assurance framework) can be allowed to operate net-pay DC arrangements without compensating members for the incentive or switching to relief at source.
The Pensions Regulator has issued feeble warnings on its website but have been absolutely supine in pressing trustees and employers to treat low-earning members fairly.
They too are in on the act; they may be technically right but the Regulator and its boss the DWP (wakey wakey Charlotte) proving absolutely hopeless in this matter. Like the PLSA and PMI and other pension trade bodies, the Pensions Regulator has chosen to ignore the plight of its poorest and most vulnerable stakeholders – SHAME ON tPR.
Who is championing DC savers?
There are plenty of champions for the DC super-rich, those who use SIPP platforms, have advisers and need to worry about LTA , AA and MPAA issues.
But there is no champion of the average DC member, unless it be the IGC chairs and members. Ironically they have no stakeholders in net-pay schemes as they govern purely relief at source pensions. It is the trustees of occupational pension schemes who should be championing DC savers and I have not heard a dickey-bird from one trustee on this issue,
The answer is that nobody is championing the rights of DC savers but Ros, and a few people like me and Kate Upcraft and Andy Agethangelous and his Transparency task force. None of the “experts” give a monkeys.
If you want their money, you lah-de-dah conference experts spouting your nonsense about DC LDI and the like, why don’t you look to issues like this? If you really think that your company’s DGF can add value, why don’t you show some intent by talking about this? You sell DGFs as defaults for schemes like Whitbread while their low-earning Baristas can lose out on a 12.5% contribution kicker.
If we can’t fulfil on our basic job of administrating the Government incentives to our most vulnerable members, what right have we to consider ourselves pension experts at all?