Paul Lewis; you are awful – but I like you!

henry tapper

7 years ago

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.

But this chart is misleading, The claret boxes show the average cost as a percentage of payroll of a DB arrangement and the rhubarb box the average payment into a DC scheme. I won’t go into the DB calculations as they are complicated by regular and deficit contributions, but most DB sponsoring employers looking at the claret boxes will say they understate their cost.

As for the fall in the DC contributions, this is down to including a whole load of employees who previously didn’t qualify for a pension -typically at the minimum contribution rate.

If you previously had 1000 people to whom you were paying 10% , you might now have another 1000 to whom you were paying 1% meaning you have 2000 to whom you pay pensions with an average contribution of around 5.5%.

As an employer you are paying more in total, but on average you are paying less per member of your pension scheme.

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.

The point is, that employer pension provision was, until recently , a minority sport where a huge amount of corporate resources were pin-pointed at those in a DB scheme (or in the replacement DC scheme) and the rest got nothing.

And if you are working for one of Britain’s 1m + employers who are in the process of setting up a workplace pension , you were getting nothing and now the “miserly” contributions that are kicking in are part of the Government’s great success story. We are starting from a high base for the few- and working down and no base for the many and working up.

Paul’s dashboard may show the many that they have a lot of catching up to do but that cannot be the fault of the employers. Employers run businesses not pension schemes, pension arrangements should be incidental to the business, but of course many take over the business (the current DB problem).

Workplace pensions are an employer cost, they do little to help employers run businesses. The increases in workplace pension costs in April 2018 and April 2019 will see most employer contributions double and then triple. Employers reading Paul’s article may be asking

“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.