In yesterday’s blog, where I talked about the “Scally duty” on an employer to provide staff with pension information, created a lot of traffic on “social media”. Some of this may be down to it being a quiet week in late August , but there was too much not to take notice.
All the traffic was from pension professionals ranging from people used to answering questions about Defined Benefit pensions to people who were principally concerned with the tax consequences of falling foul of the Lifetime Allowance , Annual Allowance and Money Purchase Annual Allowance.
In short, the comments came from the comfort zone, where people know the questions and can give the answers. Unfortunately we are already out of that comfort zone and quite possibly swimming out of our depth.
We have upwards of 8m new pension savers in this country working for 1m new employers (and we ain’t done yet). 83% of these new savers think that workplace pension saving is the norm and 79% even think that saving more would do them good.
We’ll find out whether this optimism survives the hikes in auto-enrolment contribution rates in April next year and again in April 2019. I suspect it will, people dislike pensions but they don’t distrust them.
But people don’t get pensions.
The OFT were definitive on this in 2014
The OFT’s solution was to set up IGCs , which would do for contract based workplace pensions , what Trust Boards would do for master trusts.
I totally agree with the OFT that we need super-governance through IGCs and senior trustees, but that is not the same as helping ordinary pension savers with their pensions.
The risk that employers will take is in ignoring the Scally Duty
where an employee has an important decision to make which has material financial implications the safest course of action for an employer is to provide the individual with all of the information that they need in order to make an informed decision and to make sure that the individual is aware of the existence of that information
Where might this risk apply?
There are a great number of life events that prompt staff to ask questions about their pension planning
- joining or leaving a job
- marrying or getting divorced
- additions of losses in a family
- getting old
- becoming eligible for an employer pension contribution
- finding out the pension pot is worth more than the car
I put that last one with my tongue in cheek, but we shouldn’t ignore that randomness can drive engagement as much as “lifestyle events”.
When people come to look at their pension arrangements they have a lot of questions . Most are very basic
- Where does my money go?
- What about tax?
- When and how can i get hold of my savings?
- What happens if things go wrong?
But some questions will be more sophisticated and might encroach onto the areas that IGCs and Trustees concern them, principally around the value for money that their pension providers are getting for them from purchasing investments. There might also be questions about the costs individuals are paying to get this value and whether they are getting value for money from the pension provider as well.
These can loosely be called “governance questions” as they relate to the ongoing governance of the scheme. More particular questions might be called transactional and relate to claims on the workplace pension as people look to spend money, or get hold of money when someone dies or transfer money into the pot, or transfer money away. All of these transactional events are fraught with the complexities of pension legislation, especially with regards tax.
Delivering information in a timely fashion.
I suspect that most small employers have little understanding of what their staff need to do to sort out their transactions and no idea whatsoever how to find out information on governance matters. This is not about AA, LTA or MPAA, nor is it about the complex issues that Dr Scally had to think about prior to going to court in 1991. It is about providing individuals with a web address or a phone number or a piece of paper which directs them to the information they need.
We are currently conducting a piece of research with a major payroll organisation to find out how good most small employers are at meeting the informational needs of their staff when it comes to pensions. I will be very interested in the results.
I intend to help small employers using the infrastructure we have built up within http://www.pensionplaypen.com to provide these information services in bulk. The resources . within the industry, are largely in place. We have no shortage of information, and where information is in short supply, people like Chris Sier are working hard to remedy matters.
What we have is a shortage of means of getting the answers to the people who need them most – those 9m new savers who we have never spoken to before.
If the Scally Duty gives us and employers a kick up the backside – so much the better!