The news that Morten Nilsson is leaving NOW: pensions is disappointing. Morten is one of the most decent men I have worked with. His conviction and vision have made NOW a distinctive proposition for employers choosing a workplace pension for auto-enrolment.
His departure comes at a desperately bad time, in the middle of the final phase of auto-enrolment staging. That phase will be done by October after which we are moving on
Troy Clutterbuck is now interim CEO. His background is with Jardine Lloyd Thompson (JLT) , NOW‘s current administrators. Having lasted 7 years, Nilsson is booted out with the finishing post in sight.
It’s not just the manner of Nilsson’s departure but the lack of a successor and the appointment of an interim that baffles me.
The press release makes it clear that Nilsson was pushed out by its Board, NOW‘s problems are administrative . I find the interim succession hard to understand.
NOW’s problems are to do with outsourced administration.
Morten and NOW’s problems had their genesis in its conception in 2011. NOW fundamentally misunderstood UK employers and took as its model the unbundled occupational scheme , administered by a third party contractor and relying on a contribution system that from an operational and taxation perspective looked back rather than forward.
It’s genesis was overseen by occupational pension experts, its trustees were and continue to be “old school” , it applied for and got every accreditation the PLSA and ICAEW could sell it. It was to no avail, NOW for all its good intentions has been in a hopeless mess, sold short by the experts who simply didn’t understand employers who weren’t in the occupational club.
Worst of all, it lumbered itself with administrators who could not operate tax relief at source. Consequently, a high proportion of its low earners get no tax incentives as they pay no tax. Meanwhile, NOW’s principal rivals, NEST, People’s Pension and all the insurers operating GPPs, adopted relief of source for everyone.
To begin with, no-one noticed, very few people were auto-enrolled who did not pay tax, but as the auto-enrolment threshold flat-lined and the nil-rate tax threshold went up, more and more non-tax payers were caught in the nil incentive trap.
This might be alright for occupational schemes set up to reward high earning employees (with little thought for the low-earner) but it went against the grain for Trustees who included former union man John Monks and indeed Morten Nilsson.
Alone among the occupational schemes operating a net pay scheme, NOW decided to credit its low paid members with the tax relief they were missing out on. This is costing them a pretty penny today but this will rise to thrice that pretty penny next April (five times in April 2019) ; there is no sign of concession from HMRC or movement from administrator JLT.
The inability of NOW to find a work round with JLT to the net-pay problem means that NOW are operating at an enormous commercial disadvantage to their rivals and as employee contributions rocket, the current business model looks untenable. It should not be like this, others have found a way. It is very hard to understand why NOW and JLT haven’t.
JLT own the operating system on which NOW’s administration sits – it is called Profund. The particular version of that operating system it uses is Profund Open. It would seem that JLT and NOW cannot come to commercial terms to adapt Profund Open to offer relief at source tax relief.
Zurich pensions operate relief at source pensions, the software it was built on is Profund Open. JLT purchased Profund Open after Zurich had adapted Open to operate relief at source. I do not understand why Open can be used by Zurich for relief at source but not by any other of JLT’s DC customers.
Troy Clutterbcck, interim CEO of NOW:Pensions may, we hope, have some more influence on JLT than his predecessor. We are told with pride that
Troy has been with NOW: Pensions since August 2016 joining as CFO from Jardine Lloyd Thompson Group where, during a 15 year career with the firm, he held a number of key roles including CFO UK Employee Benefits and Commercial Director, Latin America and Canada
But there is no certainty in this. JLT are one of the largest administrators of net pay workplace pensions, they only operate that way (Zurich is not a JLT customer having obtained its own version of Profund code when JLT bought Profund out of receivership). My suspicion is that JLT have bigger issues to worry about than the lowly paid NOW members.
JLT don’t hear their PLSA members complaining. Net pay is great for higher rate taxpayers. Decision makers are higher rate tax payers. There is a systemic bias towards net pay, a bias that only Nilsson was prepared to challenge.
It seems that the majority of occupational schemes are in denial that there even is a problem. Trustees presumably turn their telescopes to the blind eye and “see no ships”. An odd way to exercise their duty of care!
I am equally surprised that employers participating in net pay schemes are not considering the risks they are taking. The Scally duty makes it clear that an employer should be giving information to staff about the workplace pension scheme.
Are employers making staff in net pay occupational schemes aware that they are not getting the incentives they should be getting? Perhaps both trustees and advisers seek safety in numbers – that is a dangerous game – a dangerous game for their advisers too.
So far – no good!
So far, NOW’s decision to pay the incentives out of shareholder funds has kept NOW on the right side of the moral argument. But does Nilsson’s departure and the handing of the reins to a former CFO of JLT employee benefits , fill me with delight? – IT DOES NOT!
While I hear that NOW’s trustees are happy with JLT’s capacity to meet their service levels, the fact remains that nearly three years into the contract, JLT are still not operating the tax system on Profund Open that Zurich has been running since 2001. There is something seriously amiss here.
I will be watching with interest what NOW’s policy is towards paying the incentives now that Clutterbuck is in charge.
It is not just the tax relief issue – NOW’s administration is still failing in other ways
NOW were cited by Pension Bee as taking on average 45 days to complete the transfer of money away from them. They tell me they have recently adopted the Origo “Options” platform service – we can hope to see times reducing to the Origo standard of 12 days.
There are still residual problems for NOW, sorting out the mess created by the sloppy handover from the outsourced administrator before JLT (Xafinity). These complications are – we are told – compounded by issues relating to contribution administration caused by a partnership with yet another third party – Staff care.
It is this legacy of maladministration that forced NOW to remove itself from the Pension Regulator’s buy-list, a humiliation that may have been career terminating for Nilsson.
I am told by NOW trustees that they do not see JLT as the problem, but it is NOW’s primary administrator. With administrative gurus on its board (such as Jocelyn Blackwell) it is time NOW trustees came out with a clear action plan to remedy the whole blinking mess.
One thing is for sure, until NOW get a grip on administration and tax incentives – its problems are far from over. Sacking the head coach and director of football rarely works , I very much doubt it will work at NOW either.,
If NOW is the time for change , may that change be decisive
As for leadership, I cannot see the game plan. Why is Nilsson losing his job now? Why is there no clear successor? Why is a JLT man the interim?
Troy Clutterbuck brings to the job a career history that is unfortunately enmeshed with NOW’s problems. Let us hope that the Trustees impose themselves upon this mess and take action. If there must be change – may that change be decisive.
It would be helpful if whoever succeeds Nilsson, can clearly demonstrate separation from the administrative legacy and show determination to give its Trustees control of its operations.
For too long, NOW has looked backwards and not forwards, it needs to re-find itself in a pension landscape dominated by new employers, by new advisers and by power-brokers who could not tell you what PLSA, PMI , PQM or PQMR stood for.