I was shocked to read – as I scrolled though my digital FT this morning – Paul Lewis telling me “employers should pay more into pensions”. He argues that “miserly contributions into defined contribution schemes are storing up trouble”.
I had sat yesterday evening in a meeting where it was explained that the increase in auto-enrolment contributions plus compliance with the new minimum wage, would cause employers either to reduce their workforces or to delay taking people on.
The employers in question, were seeing labour costs rise – but not productivity.
Reading through the article, I realised just how hard it must be to understand workplace pensions , if your workplace is your living room.
Paul, like many people I know, is excited about the possibilities of the Pension Dashboard which will show us for the first time how much our employers are putting into our pensions.
Even more excitingly!
“When (the dashboard) moves beyond its prototype — the aim is 2019 — we will be able to see how completely inadequate our savings are with just a few clicks of a mouse”.
Paul then tells us we can’t see the value of our employer’s pension contributions online. This is the point at which my credulity breaks.
For I am confused. Firstly, my payslip tells me what my employer has contributed to my pension, I have a website that tells me when that money has been received by my workplace pension provider and I can get a state pension forecast by going through my Government gateway. In my case, everything but a few very old scraps of pensions can be found by me online- I just have to remember all the passwords!
The pensions dashboard may tell me how much my employer will be paying into my pension but I know the answer, just as I know my salary.
Paul is self-employed , has no-one paying into his pension and no salary. If Paul is contributing into a pension as a self-employed person, he needs to look to his bank statements.
The myth that employers are paying less into pensions
Warming to his theme, Paul turns his ire on the paucity of employer contributions , quoting a graph that we have seen before, it is an Office of National Statistics production.
The point is that most employers are paying more into pensions than ever before!
Something has changed in the way thinks about work and pensions
Workplace pensions are now the norm – 83% agree with this statement; 80% think workplace pensions are good for us – 79% think that being required to pay more would be good for us.
I could go on and rubbish some more of what Paul is saying , but that would be very foolish and wrong. That Paul is confused is obvious. He is confused in the nicest possible way. He need not feel guilty for being confused as he is coming at workplace pensions as ordinary people do – and ordinary people are much more confused than he is.
Something has changed not just for workers but for bosses.
“what more do you want me to do?”.
The importance of Paul getting it wrong
If Paul can be so wrong about dashboards, and employer costs then what must his readership be thinking?
Paul’s misconceptions are based on good intentions; but pointing the finger at employers as the solution to the pension problem is to miss the point. If employers pay more in pension they pay less in salaries or bonuses or benefits – or they simply cut jobs.
Only increased productivity can drive sustainable real wage growth and no amount of digital dashboards will change that.
The problems of inadequate retirement income cannot be placed solely at the doors of employers, nor can they be solved to giving people easier access to information on their pension rights and savings.
The only way out of the problem we have to day is the one we are employing, a slow nudge into adequacy which will take many years (if not decades) to complete. Employers are incredibly onside with regards auto-enrolment. The vast majority have complied and will continue to comply with what they have been asked to do. Many have done more.
Employers need guidance as to what to pay and that’s what they are getting. It may not be enough yet -we are not Australia, but we’re getting there.
Henry if I try and put a number of your blogs this week together I conclude that employers are paying unnecessarily high contributions into DB, caused by conservative trustees and inappropriate accounting standards. And that whilst employers are paying more cash into DC they need to realise that these very low per capita DC contributions will have to go much higher to reach adequacy
Adrian
Agreed.
That’s about right! Fascinating to see the denouement of the Royal Mail pension negotiations which could either be offering market driven DC, cash balance or stripped down career average. There is quite a lot on the spectrum if you start with a 15% + contribution rate – more difficult if the employer budget is 1-2-3%! The next few months will be a real test of the resilience of employers and staff to higher contribution rates
What does Paul Lewis’s readership think of him? Well I suspect thos who read Money Marketing like me think that he is either a:
1. A self apponted “consuemr champion”, who makes his living by being one and is a well intentioned idiot who completely misunderstands things
OR
2. The same beginning but a cynical journalist who spouts things he knows to be incorrect for click bites.
or
3. He is the father of the other MM writer for click bites, Nic Cicutti
Well I read him in MM and am in 4. someone with a lot more integrity than 1-2-3 suppose, but with a limited knowledge of how workplace pensions work. Hopefully – we’ll educate him as he educates us most of the time!
Henry
Are these the same employers who moan about pension contributions affecting wages and investment who will then pay out a ridiculous amount in dividends?
Some of them yes – and some claim they can’t afford to pay more than 1% and run executive remuneration like they were Croesus. But those are outliers, most employers will have difficulty with the demands of minimum wage and AE next April/
Henry,
I am an employee with what some would describe as a pathologically unusual interest in my pension. I skim through your blogs with the interest of someone outside the tent peeking in. If Paul Lewis is not picking up on the issues as you see them, what hope for Joe Public? What you missed (and as a non-initiate of the dashboard concept) is that the cost vs value of contributions is lost on 99.999% of the public. I know what my employer contrubtes, I see it on my payslip and on the SIPP provider app I check most days on my phone – but that tells me what went it, not a projection of its value at a TBD retirement date. Unless this dashboard thing can show people what the value of their retirement income is, people will not be sufficiently surprised/motivated to sort it out.
Simon
I think we are used to pension modellers – they are of course making long-term assumptions that will almost always turn out wrong. Statutory Money Purchase Illustrations have a long history of being ignored so let’s hope that dashboards can attract more attention. I like the new e-payslips that allow you to model your pay package online.
I still think the best place for the dashboard is as a link from a digital payslip!
“Paul is self-employed , has no-one paying into his pension and no salary.”
Surely from a pensions perspective an employee of the BBC might have been better choice rather than extolling to virtues of Equitable Life as he so eloquently did before they went bust
Paul can answer for himself , but I didn’t think he’d worked for the BBC directly for a very long time (if at all). As for the Equitable, there were plenty of pension experts with actuarial hats on who bought the Equitable Life 10% forever story.
I think they bought the no commission lie even more but then that has always satisfied the conformational bias of those who did nothing so excusing failure to provide for them selves as a smart move. Eventually claiming “poor me no one provided”
1 was approached by a 41 year old lady a few months back who has two employments. She has no accrued pensions and her husband is self employed with little pension provision.
Both her small employers were staging at the same time and her question was should she join both schemes. More importantly she said “we need to get our heads around this pensions lark” and start thinking about the future.
This is one small success of auto-enrolment. It is reaching parts of the workforce that have never been reached before.
We then need to educate so that people see why they need to save and invest for their later life.
Utopia would be a society where all realised that the more they put aside the more control they would over their post working life. Utopia is several generations off, but if we could reach it, what would be the need for employer pension contributions?
Never heard of double staging before! Sounds like it kick-started her – good news. I don’t think we’ll have a society with full employment, everyone healthy and a comfortable bunch of pensioners, but unless we can imagine what that looks like, why bother?
Henry,
I think that in due course we will start to read that people are saving less in their Bank Accounts. Why because they are paying into their pension which was the reason they were saving in the first place. Should when at looking at UK saving numbers in the future will they be adjusted to allow for the development of their Pension pots ?
NEST want to pioneer a sidecar system which pinches money out of your savings account when it hits a financial target – “feed and skim”. I do this with my Betfair Account – always skim off amounts above £50
betfair account – was it Ros who suggested lottery element to pensions to make them more attractive?
Contracting-out rebates tended to flatter those DB plans that were contracted-out and most DC schemes were not contracted-out so those pension contributions (pre-April 2016) needed to be seen in the context of those employers/employees paying higher NICs towards SERPS/S2P. However, one can’t escape the fact that a total of 8% (or even 12% as may be the case in 10 years) will be sufficient unless we admit to the abolition of ‘retirement’ and get used to a gradual reduction in work activity, and a growing leisure activity as we get older – work keeps you young if you like it. It’s the manual workers and similar folks that I feel sorry for – early deaths a plenty and not fit enough to carry on working in many cases. That’s why some flexibility in State Pension Ages would be good, but problem is human ingenuity would see the likes of High Court Judges and M.P.s becoming plasterers or welders for their last 6 months of work to qualify for early benefits!
There’s a very good episode of Porridge which shows what happens to High Court Judges when they become welders or prisoners.
I think you and Paul are talking about two different sets of employers: Paul is complaining about the majority of DB employers who closed their schemes paying 15 – 20% current contributions to c6% ER’s DC (although still on the hook for recovery contribs), while you’re lauding the millions of previous nil-paying employers who are now slowly increasing pension contributions. The ONS graph mixes both in a meaningless average. You’re both right that EE’s+ER’s contributions will eventually have to get to c15%.