Who will champion DC savers?

A barista at work in Costa Coffee.

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.


Lesley Williams


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?

barista 2

you deserve better!

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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16 Responses to Who will champion DC savers?

  1. Con Keating says:

    Henry – Where is the Financial Services Consumer Panel in this?

  2. John Mather says:

    Henry it’s not just a pensions issue the solution starts at a more fundamental level

    The British dream is of a decent home in a pleasant neighborhood, good schools for our kids, a steadily rising income, and enough money put aside for an enjoyable retirement. It is about sustaining a strong family and seeing your children off to a good college.

    However for more than a decade the top 20% have taken more than half the improvements in our economy and they don’t want to give up the selfish hoarding of all these advantages. So when it comes to sharing out the losses of Brexit again the poor will pay and increasing social unrest will be the result.

    Solutions on a postcard please starting with finding a leader and a Statesman

    • DaveC says:

      I wonder how many low earners even know/care about this and voted appropriately?

      The apathy of society is still deafening.

      But simply put:

      Low earners are usually apathetic and dumb. They’ll willingly take it on the chin and just moan.
      High earners who’d have to pay higher taxes to pay pension contributions for zero tax payers, won’t willingly take it on the chin.
      Super rich won’t want to pay either, they can just avoid more taxes.

      You can see why government won’t do much because it’ll be vote or tax take losing strategy.

      The only solution is less apathy, and a constructive (not civil unrest) engagement of the poor and low earners in the political system.
      Just to note, rushing to Corbyn isn’t political engagement.

  3. henry tapper says:

    Yeah John, we have a stateswoman leading us who is supposed to be standing up for those just getting by – are you watching St Theresa? The Financial Services Consumer Panel haven’t said anything about this (as far as I’m aware). Perhaps I could do more to make them aware Con.

  4. Rob Reid says:

    With minimal research master trusts could easily have set up a separate section for low earners where reliefs are given at source.
    One remaining drawback would be the time it takes for the relief to be paid that is something that HMRC needs to rectify
    The large consultants simply don’t care their need to defend their conflicted business model is disgraceful aided and abetted by the FFA/FIA inadequate code of ethics time that’s the TPR changed that for them
    We will never engage people by being smart asses we can do it by taking their perspective
    Thanks for this blog Henry let’s make sure it’s heard

    • Phil Castle says:

      It’s good to hear Rob Reid adding to what Henry has said. I think the vast majority of small firm IFAs like myself agree with both of you on this issue. You almost want to raise a fund to challenge a firm on their resposibilities to their low paid employees on this one. I’d put my hand in my pocket for this.

  5. henry tapper says:

    I’ve spoken with some master trusts; it simply is a matter of system constraints, e.g. there is neither time or money to sort this within current commercial plans. NOW for instance use Profund, a system used by Zurich – who adapted it to record personal pension contributions (using RAS). JLT are quoting huge sums to adapt Profund, I would like to think NOW do not need to pay a king’s ransom to sort this. I suspect that this is a common problem and as you guys say, if everyone pulled together , the cost could be spread. NOW should not be paying the cost on their own.

    • Alan says:

      i would bet my house profund can handle rad already. I worked on it for 10 years and used it as a client for another 10…

  6. You point out only some of the ‘net earnings penalties’. The increase in tax allowances, past and yet to come, are always presented as being primarily for the benefit of the lower paid; they’re not they benefit the better off much more. If you’re part time low paid and have your income topped up by state benefits doesn’t help you much, if at all. The benefits are calculated on the basis of net earnings. Increase net earnings and the benefits go down; often penny for penny. Those earning more and not needing benefits get the full amount.

  7. Bob Ward says:

    I have written many times agreeing this is totally unacceptable for some employees to be disadvantaged but the fault doesn’t lie with pension providers, it is the fault of the Treasury and HMRC.

    You rightly remind us Henry that the Gov and DWP promoted auto enrolment throughout the launch that there would be a Goiv incentive. The iniquity has been brought about by George Osborn widening the gap between the lower earnings level and the AE trigger point. He was half-read on practical pensions issues and did not drill down into the affect of his allowance juggling. DWP, HMRC and the Treasury all deserve to be taken to task to sort this out.

    It’s as simple as creating a tax code so employers can apply the tax relief to the low earners within the payroll and offset the amount in their RTI input

    Target the criticism at those who caused the problem and have the ability to rectify it immediately

    Bob Ward

  8. henry tapper says:

    “It’s as simple as creating a tax code so employers can apply the tax relief to the low earners within the payroll and offset the amount in their RTI input” – Bob – I think this needs to be tested. Perhaps we can take this solution to HMRC but we’d need a little more than your comment.

  9. Bob Compton says:

    The problem will get worse for low earners when their contribution increases threefold next year. The minimum employee contribution will increase from 1% to 3% from April 2018, and then to 5% from April 2019. The AE package was “sold” by the government as being 4/3/1, Employee/Er/Tax rebate, Whilst NOW can afford a small top up for the current missing tax relief for those affected, it will be more costly next April, and again the year after.

    If ever there was an increased incentive to opt out next April this has got to be it. Now I understand The Pensions Regulator will pursue employers who encourage employees to opt out, but surely The PR should be tackling the government behind the scenes as they are in effect “aiding and abetting”!

    The FCA take IFA’s and Banks to task for miss selling, surely this is also such a case.

    I am sure Philip Hammond would like to earn some Brownie points, allowing a “tax credit” for AE pensions must be feasible, and low cost, it just takes political will. But with a Budget looming this autumn it must be right to be putting effort into correcting this injustice. Now is the time to remind those that have influence, that not only should it be put right from April next year, but the government should also pay the top ups, for previous years when it should/could have been paid if the appropriate scheme had been adopted.

  10. henry tapper says:

    I agree – if there was a proper understanding of how the system has failed low-earners there would be an outcry. But there is only Ros making a noise about this and – great as her noise is – it is not enough. Where are the cries of outrage at this injustice? I spoke this morning to a member of the Financial Service Consumer Panel about this and I hope he is going to talk to the FCA. He gave me little hope of success as he thought they would refer it to Pensions Regulator. This has been going on for a couple of years now and nothing much is changing.

  11. Bob Compton says:

    Yes that will just go round in circles. It could do with a higher profile, I am wondering if your friend at the FT Jo Crombo, could get some tweets out. Or if Steve Bee could turn it into a cartoon.

    • henry tapper says:

      That would be good – Ros has done more than a few tweets on this, I’m not sure Steve is cartooning at this level of detail but you never know!

  12. bobchampion says:

    Henry Excellent Post.
    Not sure why some comments expect Government to do something. Relief at Source has been around since 1988. Since 2006 it is only Occupational schemes that can operate Net Pay. To me trustees of Occupational Schemes that do not operate relief at source for the lower paid are failing in their fiduciary duties to their members.
    Often the lazy reply is that higher rate tax payers have to wait a long time for their tax relief. This is untrue if a regular contribution is involved HMRC will adjust PAYE tax coding accordingly.
    Finally Gareth makes an excellent point as to why this is so important, otherwise those who are most in need of pension savings suffer a double whammy.

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