I have just read a policy paper in my hand from Hargreaves Lansdown;  “Putting Individuals at the Heart of the Pension System”.

After some pretty dire submissions to the Work and Pensions Committee on CDC, I hadn’t thought to agree with HL on much, but I do like this paper.

I would link it to the blog  but it doesn’t appear to be linked to its website and it’s too long for me to post. I have a PDF yours – if you mail henry.tapper@pensionplaypen.com

New technology – new ideas

Hargreaves Lansdown has, for some time, been looking to adopt new technology to put the individual in charge of their money (and prevent “pot proliferation. In November, they announced they were working with Tex and Criterion to help people move money around the system.

Now they are calling for the adoption of this new technology to allow employers to clear contributions to the workplace pension of the member’s choice – rather than the employer’s choice.

As Hargreaves Lansdown put it

If we forced employees to change their bank every time they changed jobs, there would be an outcry, yet this is what auto-enrolment does with their pensions.

Their’s is a good idea. Employers – especially small employers – are showing little appetite for governing their workplace pensions and are simply sticking to the compliance code laid down by tPR – ensuring they get the right contributions to the workplace pension in a timely fashion.

The Pensions Regulator is showing little appetite to educate employers that not all workplace pension are the same and has – consistently since 2012 – adopted a neutral stance to workplace pensions. Not all workplace pensions are the same, some are better than others and some suit some members better than others. For instance, Hargreaves Lansdown’s workplace pension is as different from NEST’s as chalk is from cheese.

Since the members get the workplace pension they are given, they have to make the best of it. But if they find they are in one they like – they can only rely on employer sponsorship as long as they stay in the current job. Once they join a new employer, they are into a new workplace pension – and it may not be to their taste.

This is hardly optimal. If we want members to “get to know their workplace pension”, why can’t we allow them to take it with them to their next employer?

What Hargreaves Lansdown is actually saying…

Hargreaves Lansdown proposes the existing auto-enrolment system should be preserved as it is, with employers selecting a default scheme, enrolling members and making contributions on their behalf. All the current defaults would remain in place. Nothing would change or be taken away from the existing system.

For disengaged members and those without an existing pension, the system would continue exactly as it does at present.

However, an individual who has an existing auto-enrolment pension from a previous employment or who wishes to make an active choice regarding their pension provider, would have a right to choose that arrangement in preference to being forced to join their new employer’s scheme. They would have the right to have their new employer’s contributions paid into the pension of their choice, along with any of their own contributions deducted from their salary. (HL Policy Paper May 18)

There are of course barriers to managing this. Payroll has struggled to come to terms with the new employer duties for auto-enrolment. Despite most employers complying, we know there are areas of non-compliance.

The Pensions Regulator will warn Government that introducing the increased complexity inherent in HL’s proposal, risks some payrolls falling over with the extra burden of administrative complexity. What I and Tom McPhail might argue for at a pension policy level, payroll and tPR might argue against, from the employer’s perspective.

Most payolls are progressive

Talk to Sage about Sage DX and they will tell you that they can already clear – using APIs – to most of the major Auto Enrolment workplace pensions.

Other payrolls such as Star, QTAC and Xero use the pensionsync system, which is effectively a means for smaller payrolls to adopt clearing through a third party.

There may be resistance among other payrolls for whom API data clearance is harder and less readily adopted, but BASDA could take up Hargreaves Lansdown’s policy paper and respond to the challenge..

In my view, we are not far from being to implement clearance, especially if clearance was restricted to providers who committed to common data standards

Sorting tomorrow’s problems now – not later

In the early years of auto-enrolment, when the fear was that the data transfer system employed by most providers was clunky, insecure and prone to error, common data standards could be introduced that made payroll uploads to workplace pensions as simple as RTI.

PAPDIS was an industry initiative designed to provide a common data standard to enable this to happen. Some software has adopted PAPDIS but sadly, it is little used. The idea was a good one, but it came too late. NEST had already a data standard in place and was not going to re-engineer its service. BASDA was behind PAPDIS, but it was also behind the times.

It seems to me that a new data standard for clearing contributions according to member’s wishes, could be established, tested and implemented in a safe environment before the demand for clearing became a commercial and regulatory imperative.

What is needed is some forward thinking. We need (this time) to be getting technology prepared before – rather than after, the problem has arisen. Right now, most people’s pots are small enough for their being invested sub-optimally – to be a small problem. But this will not always be the case.

The DWP estimate that unless we get some way for pots to follow members in place soon, there will be 50m unloved pots by 2050 – resulting from auto-enrolment. This is in nobody’s interest. The time to get this problem sorted is now – not three decades hence!

Do these really include employers understanding pensions ?