More of us are saving, but we aren’t saving any more. The democratisation of pension saving – arising from auto-enrolment is a great thing – everyone can dare to dream of stopping work under their own power. But there is a gathering sense of realism in the private sector; we no longer have the option to work for private sector companies that will take care of our retirement, instead we have to contribute ourselves, and way beyond the minima.
Last night I chaired a session at the Trades Union Congress, attended by Steel-men, Fire workers, union officials and a smattering of “pension experts”. Terry Pullinger talked of his fears – not for his own Royal Mail – who will get the pension scheme they want, but for the millions of new savers who have no prospect of a Royal Mail “wage for life” – at least at current savings levels.
The state of our workplace pensions
Over the next 48 hours we will see published two reports that will remind us how far we are from getting workplace pensions right. The first- published today, will focus on the standards in small DC schemes; as has been well trailed, the DWP intend for the market to consolidate around good and it will be making life increasingly hard for the mediocre.
Why companies want to run mediocre workplace pension schemes is a mystery. They are more trouble than they are worth and (unlike small DB plans which really are special to the employer) small DC plans look like vanity projects to me. The sooner the apparatus that keeps costs high (and therefore outcomes low) is kicked away – the better. For too long small single occupational pension schemes have been allowed to get away with poor delivery in terms of governance, communication , investment and administration. The message from the DWP is clear – shape up or shape out.
There are really good schemes in the not for profit and for profit sectors (though the former carries the weight of good practice). Schemes like NEST and People’s pension are flag-bearers for low cost-provision, making it possible for small companies to participate in world class pension saving schemes. We have some way to calling them pension schemes – but the DWP are doing something (through their work on CDC) to make this happen.
The state of our workplace pension schemes is variable, we need a levelling up to the best.
The state of pension administration
More and more people have the title “payroll and pension manager”. For most companies, the two are synonymous, workplace pensions are dependent on the right data from payroll and payroll managers therefore own the pension problem.
A second report, published tomorrow, is likely to show that not all pension administration is good. Blame it on payroll , blame it on workplace pensions – the right money is not necessarily arriving at the right place at the right time.
The sums that may be being mis-placed may be small (at this stage of the phasing cycle) but they are increasingly meaningful. Add to this , the problem of non-investment of Government Incentives by net-pay schemes and you have the makings of serious jeopardy for the pots of many pension savers.
Though I have championed payroll as the true heroes of auto-enrolment, the problem is not with the pension and payroll managers who regularly turn up to train and be trained at the CIPP and the Learn Centre. It’s with the huge hinterland of small organisations “just getting by”; employers who are operating auto-enrolment on a hit and hope basis, whose practices are thought to be an approximation of good.
There is no “approximation of good” , in payroll and in DC pensions – it has to be “right first time” and information is leaking out from those managing the data – that suggests data is regularly being received y workplace pension providers that is incomplete or just wrong. The Government cannot turn a blind eye to this problem.
The state of payroll contributions to pensions is variable, the Government cannot turn a blind eye to its problems
Implications for ordinary people.
People are clearly getting the message – from auto-enrolment , the pension freedoms and latterly from the promise of a pensions dashboard, that pension money is there money. The 200,000 people who have signed the “save our dashboard” petition aren’t all pension geeks. The Sun is running pension double spreads for heavens sake.
Pensions will be under the public gaze as never before. That is why it is vital we clean up the problem with small and unviable master trusts, small one employer trust based plans and most of all with the payroll and pension administration that feeds these plans. Contract based GPPs need more scrutiny too.
The trustees and IGCs that have guardianship of our savings need to raise their game and that is what the DWP (through tPR) are hoping they will do. But much damage has already been done. Too many poor quality workplace pensions have been allowed to operate without the controls needed to merit being the retirement savings plans of their employers and members. Too many payrolls have been allowed to contribute on a hit and hope basis.
This morning I am off to the DWP to listen to plans they have for the future. I will be speaking with people who care passionately about getting this right. The DWP and tPR, the Treasury and FCA can set in place the framework, but it is the private sector that has to deliver auto-enrolment, pension freedoms and the means to see what is and has been done – the pension dashboard.
With greater visibility – greater transparency – the true state of “good and bad” will be revealed. We cannot have it any other way. Sunlight is indeed a great disinfectant and let’s hope that as we move into a more transparent era, we will continue to tell a good story about the improving state of our workplace pensions!