This is good news for shareholders who picked up Costa in the late 90s for a measly £19m. It’s also good news for the Whitbread defined benefit pension scheme which has a £289m shortfall – some – if not all of that will be plugged, but employees get nothing and it looks like the “net-pay” Whitbread DC scheme will continue to skank low paid employees out of the Government incentive on auto-enrolment contributions.
Alongside the shareholders, the DB pensioners and of course Whitbread’s management (who will be making tidy bonuses out of this), the interests of those who actually serve at, deliver to and maintain Costas 3000 UK shops – seem to rank pretty low.
So low in fact that Whitbread have operated a net pay scheme for them, which denies them the 20% Government incentive in lieu of tax relief.
Lesley Williams, former Chair of PLSA and head of Whitbread pensions famously said that those that don’t pay tax – don’t get tax-relief. She was right, they are supposed to get an incentive which is paid to members of NEST, People’s Pension , the Legal and General Master trust and other occupational pension schemes – paid by the tax-payer.
But Whibread’s low income pension savers don’t get this valuable incentive because it is too administratively difficult for Whitbread’s pension trustees to do. That’s cack.
Sorting NET-PAY doesn’t COSTA lot.
There are tens of thousands of low paid employees at Whitbread, it’s not just the COSTA lot, it’s all the people working in Premier Inns and other Whitbread occupations.
What happens is that those who earn (in one pay period) above the minimum contribution for auto-enrolment, get enrolled into the Whitbread workplace pension – a pension just for Whitbread employees. If Whitbread enrolled them into NEST, or People’s or any number of insurance based personal pensions, they’d get the incentive, but because Whitbread operate their pension under “net-pay” the low-paid miss out.
How many of the Whitbread employees are losing out we don’t know, it depends on how effective Whitbread are in playing the postponement hokey-cokey and how many of these staff opt-out. I would like the Pensions Regulator to do an audit and find out!
There are likely to be a lot of people auto-enrolled – especially because most of these staff are on variable hours, meaning that they are constantly spiking into auto-enrolment eligibility ( a bit technical this – but the payroll people know what I mean).
Why net- pay – anyway?
I asked someone at the Pensions Trust, another net-pay scheme with a lot of AE enrolled low earners in it, this very questions. Her answer was that “everyone does it”. That is a rubbish reason.
Most large companies operate net-pay schemes because that is how their defined benefit schemes are run and net pay is good news if you are a higher rate tax-payer, as you get all your tax-relief up front and you don’t have to claim it back via self-assessment. That’s why most DC schemes are “net-pay”.
Occupational pension scheme managers, who are notoriously snobbish about NEST and contract based pensions, don’t like the thought of handing over the reins to a third- party. So they continue the pretence that they can do better than insurers and the providers of master trusts. Most of the numbers I have seen show that they can’t, their pension provision is very expensive as they rely on third parties and don’t have the scale of the bundled providers, and they pay a fortune for bespoke investment and communication strategies that are little more than “vanity plays”. Is Whitbread a case in point? You bet it is.
Most companies who run net-pay schemes aren’t bothered about the consequences because low-paid people don’t matter and higher rate tax payers in their employ do.
Why NET-PAY might cost a lot!
If Whitbread are reading this, they may be getting a queasy feeling in their tummies. What if a class-action lawyer works out that their trustees are denying their staff 20% of their contributions into a workplace pension, out of a flagrant disregard for fairness?
Might there not be a case for retrospective action to be taken to restore the inventive to those who have been denied it?
Might this not be ruinously expensive in terms of contributions and administration?
Might this not be considerably more embarrassing to Whitbread than this little blog? Would they like to have the Pensions Ombudsman, the Pensions Regulator and the national press crawling all over them?
Restore the Incentives to your low-paid staff now – Whitbread!
Now is the time for Whitbread to put this matter right. They should with immediate effect set aside a portion of the £3.9bn sale price for pension restitution to low-paid staff denied their Government Inventive die to Whitbread’s pension administration failings.
They should employ a data specialist to trawl back and provide an independent assessment of individual entitlements to contributions and then accelerate those contributions by the performance of the fund to find individual entitlements.
If by any chance those entitlements create further problems for staff (for instance they exceed the individuals annual allowance), Whitbread should compensate, as they would their top executives.
They should get this whole business signed off by the Pensions Regulator and – once restitution has been paid, they should switch their scheme to relief at source without further delay. If that means getting a new administrator – so be it. If that means moving to a bundled basis – so be it.
The Pensions Regulator should make sure this happens. It is every bit as important that DC contributors get their pension deficits sorted – as the lucky DB members.
If Whitbread don’t sort things for their low-paid pension savers, the Pensions Regulator should consider blocking the deal.
Whitbread – you are not alone.
Up and down the country, there are many net-pay schemes as injurious to low earning pension savers as Whitbread’s. Whitbread – were they to tackle this issue would set an example to the rest, many of which are competitors to Whitbread.
Of course there would be casualties, the pension consultants would hate it, as most of them are also the pension administrators operating net-pay.
The high-earners would get grumpy as they’d not get the cushy ride on tax-relief they had before.
HMRC wouldn’t be too pleased, as they are coning it out of low paid employees.
But anyone interested in restoring confidence in pensions , would be delighted- me especially.
Let’s nail NET-PAY now