What should we make of reports in the Daily Telegraph that our Pensions Minister, Guy Opperman, is meeting with pension experts to consider a system where a workplace pension could follow the employee, rather than employees joining new plans with each new job?
Kate Upcraft’s response to me was characteristically to the point.
“it would be a nightmare for employers of all sizes. Does anyone realise how time consuming it is to prepare and upload files given the industry refuses to work to one standard?”
If you are running your employer’s payroll, or a payroll bureau, then I imagine you’re not overwhelmed with the prospect of clearing contributions to an unlimited universe of workplace pensions.
Government triumphalism over the success of auto-enrolment belies the strain it has placed and continues to place on payroll.
Upcraft argues that DWP have never seen employers as key stakeholders as AE was really the first-time payroll operatives had had a major interaction with one of their policies. This certainly chimes with my experience of introducing payroll champions to Sir Steve Webb in 2013. But much has changed and the DWP’s Pensions Regulator is now almost as familiar to payroll as HMRC.
It would be easy to argue from this analysis that the pensions minister “should know better”.
But this would be to ignore evidence that the tectonic plates of technology are moving. This year we have seen the successful introduction of open banking, with faster payments now a reality. We are but a minor tremor away from open pensions which might yet make a pensions dashboard a reality in 2019. For Fintech, read Pentech, the Financial Conduct Authority is leading the world with its innovation hub.
Success of the pensions dashboard is predicated on the adoption of a set of data standards that could in time be adopted by payroll to “clear” contributions to the workplace pension of the employee’s choosing.
Certainly, this would help restore consumer confidence in pensions. The DWP estimate that unless some means is found to consolidate workplace pensions, we could be looking at nearly 50m abandoned pots by 2050. With the average worker expecting to start with 11 employers in a lifetime, “pot profusion” threatens to derail the AE Express.
While a dashboard might allow multiple pots to be viewed on a single screen, the prospect of organising some kind of retirement income from upwards of ten workplace pensions is daunting. Small wonder that Opperman’s open to the arguments of workplace pension providers.
Small wonder too, that workplace pension providers are looking to limit pot proliferation. The financial implications of managing millions of small pots and small potholders are dire. While they may not present an existential threat to NEST, NOW or People’s pension, they limit their capacity to bring down costs over time – and improve service. Some of these providers are openly touting ideas that to pension traditionalists seem as outlandish as “clearing” seems to payroll.
One of these ideas has been dubbed “prisoner exchange” and involves one workplace pension provider swapping thousands of abandoned pots with another provider. This time it is the provider – not the member – who is calling the shots, but the concept is equally fraught with risk.
If we take into account the advances in technology and the proliferation in pots, we can make more sense of Government interest in “workplace pensions following the member.
But it is still very worrying that payroll does not seem to have a seat at the Minister’s table. Organisations such as PensionSync have pioneered the technology that could make clearing possible. Indeed, PensionSync have commented on social media that a system of clearing could create a more transparent and efficient way to operate workplace pensions.
Payroll could be determining not just the shape of change but the pace of change. Pensionsync’s recent report on the (lack of) quality of the data reaching providers tells us AE compliance may not quite as comprehensive as the DWP would have us think. Payroll must impress on Government that no move to “clearing” happens, till pension providers and payroll can be sure that the single interface model is working properly.
From the feedback I am getting, even when new technology is in place, pension providers are still applying “lipstick to the pig”. Address errors on one insurer’s workplace pensions database, included data that had been imported by an API, it turned out that the API had been delivering data to an insurer’s spreadsheet which had then been used to manually key in entries onto the insurer’s system.
Some would say that you couldn’t make it up, sadly – that’s precisely what some manual updating has done. Until we have moved to straight through processing for all AE interfaces, we cannot contemplate moving to the fantasy of payroll offering universal clearing.