Whitbread – you must pay up on the Government’s pension promise

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This blog calls on Whitbread to pay the incentive outstanding to many of their staff before the sale of Costa to Coca Cola. If Whitbread refuses to do so, the Pensions Regulator should block the sale. If Whitbread wants to claim back the money paid on behalf of HMRC – it should join the campaign to sort the net pay anomaly and do so on behalf of everyone who believes a pension promise is not for breaking.

Thanks to John Ralfe for bringing my attention to an article in today’s Sunday Times.

In case- like me – you don’t have a full subscription to the Times. I can explain. Quoting James Coney’s excellent article

The £3.9bn sale of Costa Coffee to Coca-Cola could hit baristas’ retirement savings.

The Pensions Regulator has been warned that thousands of low-paid staff at Costa owner Whitbread have lost out on hundreds of pounds in tax breaks because of the type of pension they are enrolled in.

Henry Tapper, a director of pension firm First Actuarial, believes that once Coca-Cola takes over Costa’s scheme, workers will have their losses locked in, leaving them unable to claim them back.

He believes the company and its pension trustees could face a class action by workers when they realise they have been deprived of tax breaks.

Tapper said: “At the moment, the cost of restitution for these workers is quite small. The regulator needs to intervene to ask Whitbread for a special contribution to plug the hole for its lowest-paid workers. It won’t take long for a top-quality lawyer to realise that they could put forward a class action to get compensation.”

When the Sunday Times writes an article, especially when its published in its business section, that article is read. The Sunday Times has more clout than Henry Tapper by some way! The article continues.

As part of the sale of Costa to Coca-Cola, the Pensions Regulator is monitoring what happens to the Whitbread defined-benefit scheme, which has a deficit of about £320m. Whitbread has pledged to use cash from the sale to reduce the black hole.

Defined-contribution schemes are usually waved through in takeovers because it is impossible for the funds to have a deficit. However, a problem has arisen with so-called net pay schemes, which deduct pension contributions before tax is deducted. With these, workers earning more than the auto-enrolment threshold of £10,000, but less than the £11,850 personal allowance, miss out on government tax relief top-ups because they do not pay income tax.

About 1.2m workers in the UK are thought to be affected by this loophole.

The Pensions Regulator said it provided assistance to companies to help them decide which pension to pick for employees. “It is for employers to choose a pension scheme that is suitable for their staff,” it said, “including giving consideration to tax relief.”

Whitbread said it could not comment on the Costa scheme after the sale to Coca-Cola, “as we are currently in a pensions consultation with those employees”.

There is nothing new in this story. If John had wanted to, he could have dismissed several blogs on here, most notably my blog on September 1st, Whitbread, treat your Baristas fairly

He could also have read my blog “Can a DC plan be in deficit“,  He could have read my earlier pieces on this which date back to July 2015 and specifically my piece on Whitbread’s net-pay issues which I wrote almost exactly three years ago.

The Pensions Regulator has read the blog, I have spoken with it about the blog, they have dismissed it. Which is why I am pleased that the Sunday Times has picked up on this matter.

Treating baristas fairly.

The cost to the pension pot of not getting the Government Incentive is around £34 this year, it goes up to £64 next year. Most baristas don’t know they’re being short-changed- why would they? I wonder if the pension consultation with staff concerned has picked up on this issue, I’ve never met a Costa employee who knew about it.

If you go to the Whitbread Pension website, the issue doesn’t appear as a frequently asked question. Whatever the search  term I used – I could find no mention of the issue.

tax relief 3tax relief 2

tax relief 1

Try it  yourself

Sadly Costa baristas don’t read my blog, but some of them read the Sunday Times and some of them have enough nouse to come together and demand they get the extra money paid into their pension accounts before it is too late. Costa can’t pay the money to their pensions if they are no longer in Costa’s employ.

Meanwhile, the Pensions Regulator – which has a statutory duty of care to protect the members of all pension schemes, whether the mighty Whitbread Defined Benefit plan or the humble Whitbread workplace pension – should take note.

It is not good enough to dismiss the “net pay scandal” as an anomaly. If short-changing baristas is swept under the table, the issue will reappear, as the GMP equalisation issue reappeared, several years down the line.

At a recent payroll conference, the Pensions Regulator tried to blame small employers with impacted staff, for choosing the wrong master trust. It is true that the Pensions Regulator’s website does give some guidance on this issue, but it is buried several screens deep on its website. Most employers – like most baristas- don’t have a clue there is an issue. I am pleased to say that the delegates- mainly payroll managers – were in no mood to be berated for choosing to join the wrong scheme. If tPR thinks it can divert the problem onto small employers and master trusts it should think again.

After all, the largest employer operating net pay schemes – and the employer with the biggest liability in Britain – is the UK Government.

Why action on Costa is needed now.

It is going to cost the pensions industry £15bn to sort out GMP equalisation, it will cost a whole lot more to sort out the “net pay anomaly” – unless something is done about it now.

Now is the time to do something about it. HMRC are doing something about the anomalies surrounding tax-relief for Scottish people with local income tax issues, they can do something about the net-pay anomaly now.

If they do, it will sort out the problems for those auto-enrolled into workplace pensions going forward. As for the problems of the past, for many – the damage has been done, it is very hard to see how those denied their incentives will be compensated through their pensions, this leaves companies vulnerable- as I say in my article – to class actions from impacted employees.

When there is a corporate event – and the sale of Costa by Whitbread to Coca Cola is a £3.9bn corporate event, then the problem crystallises. That is what is happening now.

Thankfully, the Sunday Times has picked up on my blog in time. Thankfully that is , for the Costa baristas, but – more importantly – for the 1.2m other low paid workers who are in net pay schemes and risk being short-changed.

These are people- to coin the phrase – “just getting by”. They are not the people who the pensions industry cares much about – as can be seen by John Ralfe’s comment. But collectively, they are powerful.

It is time that someone in pensions stuck up for the low paid and James Coney is doing that. He is aware that there are others. The Low Income Tax Reforms Group is another. You can read their solution to the net pay anomaly here. Now Pensions is another. There are many more campaigning for the poor including my friend Kate Upcraft and  the CIPP.

The PLSA are at last waking up to an issue that must be acutely embarrassing to them. Consultants are also embarrassed -we have heard virtually nothing from them on the anomaly thus far. In 2015 I warned them.

But I suspect  the tide is turning.

It only takes the Pensions Regulator to accept that the money owed to the low-paid auto-enrolled is real money.

It only takes HMRC to accept that the promise of 4+3+1 was made to everyone enrolled into workplace pensions – whether they paid tax or not. It only takes the Whitbread pension consultation to raise this issue with Whitbread with some hope of support from those who have a statutory objective to protect their pensions –

for things to change.

This blog calls on Whitbread to pay the incentive outstanding to many of their staff before the sale of Costa to Coca Cola. If Whitbread refuses to do so, the Pensions Regulator should block the sale. If Whitbread wants to claim back the money paid on behalf of HMRC – it should join the campaign to sort the net pay anomaly and do so on behalf of everyone who believes a pension promise is not for breaking.


Scottish tax relief

A reminder that HMRC can do it


About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in auto-enrolment, Blogging, napf, Payroll, pensions, PLSA, Politics, Retirement, Ros Altmann. Bookmark the permalink.

4 Responses to Whitbread – you must pay up on the Government’s pension promise

  1. Bob Ward says:

    Perhaps the pressure on Whitbread may make the difference because they are big enough to temporarily make up the tax relief for their members and then claim from HMRC, with a Class Action if necessary. There’s little sight of any impetus from tPR, and to say they have a Statutory Duty to look after pension members is laughable because to-date all they have shown is contempt of those members by using that phrase to assist others to attack the members and line their pockets. Any Action should include them and if possible the DWP as all are to blame for the debacle caused by the designers of the Auto Enrolment system and the current situation caused by George Osborn. No-one, from Ministers down had the gumption to waive a red flag in front of Osborne when he decided to split the AE trigger point from the LEL. Instead they ignored the issue until they were out of the firing line and now speak up with rhetoric but no action.
    Whilst the suggestion by LITRG of changes to the Finance Act may provide the legal platform for change, their solution to have a P800 annual reconciliation is cumbersome and expensive; no wonder HMRC is avoiding it. The simple solution I have suggested for the last 2 years is to provide employers with a new tax code for those employees with earnings below the LEL so that the tax relief can be provided on a direct pay reference period through the RTI monthly submission. SIMPLE, ECONOMIC, ACCURATE, IMMEDIATE

    • Phil Castle says:

      I am afraid that this is het another case of “the emperors new clothes” and I quote from your comment “No-one, from Ministers down had the gumption to waive a red flag”, this was then followed by the campaigning for and against Brexit which didn’t identiy to the general public as far as I remmeber the serious issue of the Irish border and regional nationaism in general. Had it done so, it may have influenced and chanegd many people’s vote (mine chanegd 2 weeks before Brexit when several people I know with links to NI pointed out to me the potential problems)
      The Net pay debacle was an accident waiten to happen that most advisers dealing with group schemes should have known about and advice to employers and trustees should have reflected the general employee demograohic at any given firm and schemes put in place to refelct the employees needs. The same is actually true to say for range of risk profiles available for amember to choose from and what many are only just now realising (inlcuding the DWP who I met along with Julia Dreblow of SRI sevices this time last year) ESG issues are also a risk to your money and where this has not been considered by an adviser when making reccomendations to trustees, there may from April onwards be some squeeky bums with FOS being able to consdier complaints from smaller busiensses and impose decisions of uo to £350k.
      A class action against and employer and trustees by staff members could then be followed by one by the ER and the Trustees against the Employee benefit advsiers.

  2. P Simon Parsons says:

    The government could simply top-up the payments themselves, maybe via a new pension contributions credit, after all, it is not employers who are making the additional payments for RAS schemes over NPA, it is the government via the tax man. So why would it be the employers problem? The promise was not an employer promise, if there was a promise at all, it was the governments promise.

    • Bob Ward says:

      Precisely. The original AE Assessment letters which have to be issued to employees were drafted by tPR on the instructions of DWP and were COMPULSORY. The letter scripts were embedded in the tPR Employer Guides and software providers’ instructions. The letters included pictorial examples of how the contributions would be from the members, their employer and “the Government top-up” tax relief.
      This was the compulsory basis on which employers signed up and dutifully enrolled their employees. This was the contract terms given to the employees. The Gov has reneged on the terms of AE engagement. tPR should have taken up the mantle and challenged DWP’s instructions and demanded a solution. Instead they quietly changed their employer guides and literature and stepped back from dictating the assessment letters, knowing there was a problem but not prepared to speak out

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