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.
Twaddle from @henryhtapper https://t.co/mABXI14Zux
— John Ralfe (@JohnRalfe1) November 18, 2018
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.
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.
A reminder that HMRC can do it