This blog is written for employers and advisers who have used or assisted with the ITM eAsE link to L&G’s workplace savings Plan. You are where you are – here is some context and some thoughts on your position]
For many years the L&G workplace savings plan was the #1 choice for small businesses looking to offer a personal pension solution to staff through auto-enrolment.
L&G more or less wrote the book in 2012 with both their group personal pension plan and its mastertrust; employers such as Marks & Spencer, Boots and Asda signed up. More recently Tesco has joined them. Attractively priced and offering the support of an impressive investment operation (LGIM), L&G continues to service its large and medium sized customers well.
L&G pioneered the IGC, setting up before others, funding the IGC to run annual meetings with employers and offering a degree of transparency through its chair statements that set it apart. Governance on its master trust was and is equally impressive.
The strategy of leading the charge on auto-enrolment seemed consistent from CEO Nigel Wilson down. L&G had a strong social purpose and spoke out on it. It was the first organisation to offer a credible default that took responsible investment seriously.
I am a Legal and General investor, investing in Future World, I have been described both within L&G and without as an advocate for their way of doing things. As regards the kind of company I work for (with 300 employees and strong employer contributions), L&G is a standout operation.
But not all employers are large and loaded.
One of the deals that L&G won on the way to becoming a dominant force in UK workplace pensions was a contract with the Federation of Small businesses. The FSB is an important trade body to smaller companies, those with less than 50 employers. These employers are often paternalistic and take their pension obligations seriously. Many small employers contracted with L&G because it was the default provider for the FSB, either with the FSB’s financial services arm or with other employers.
Because L&G remained a stand-out workplace pension, it was often the choice for smaller businesses using Pension PlayPen, the online “choose a pension” service offered by me – with analytics from First Actuarial.
But somewhere, somehow, Legal and General as a life assurance company started to change. The management of the company shifted from the pragmatic customer focus of Kingswood to the more abstract wold of Legal and General Investment Management. The IGC – once led by Paul Trickett with members from the life company who knew small businesses changed too. Now the IGC is heavily focussed on investment and so is L&G pensions management.
There was a problem with workplace pensions; the smaller employers that had arrived from the FSB and through Pension PlayPen and a number of solid IFAs, were being offered a deal that did not meet LGIM’s target margins. A decision was taken to cut costs by automating service.
Over the last three years , the direct support offered to small employers and their business advisers by L&G has turned from excellent to virtually non-existent. Instead of contracting directly with employers to provide payroll with a supported service, new customers were required to use one of two external payroll interfaces. The first Pensionsync offers a link between employers and L&G which is free to use and works well. The second – is offered at a cost by ITM and though it has had some problems, has generally done the job.
A risky strategy
I have warned – on this blog and at IGC meetings – that the dependency on external software to solve a core issue for auto-enrolment – the payroll interface – is a big business risk for both L&G and its employers.
We have now seen one of the two providers crystallise that risk. ITM – who offer the “eAsE” interface will be ramping up its prices by a huge percentage at the end of January.
This risk was anticipated by Sage and other large payroll software suppliers – wary of the consequences of a failure or change in strategic direction. They demanded a direct interface with L&G and would not endorse any middleware approach
ITM is not failing, but since its MBO last year it is changing its direction. It clearly wants to make eAsE profitable in its own right and will argue that this huge price rise is justifiable on that basis.
But it leaves small employers contracting with L&G through Ease with a problem. Here is that problem, as described to me by one IFA with a large book of clients using L&G through eAsE.
As you know, it has been a painful journey to get to this stage:
- Tie up with ITM and PensionSync
- Subsequently 18+ months of issues with the ITM system itself
- For a client who left a Payroll Bureau who had an ITM license, L&G would open up their old ‘Manage my Scheme’ service to allow employers to continue to administering schemes, although it would take 6 months to setup access.
- L&G then further removed the ability to allow an employer to use the old L&G ‘Manage my Scheme’ service for employers who left a payroll bureaux who had a license of ITM. Despite older employers who setup in the pre-ITM era being able to continue to use.
- An employer also couldn’t switch to a PensionSync enabled solution as L&G refused to take action despite pressure from Will, Chris and the team.
- Essentially rendering their scheme redundant.
- Ability removed for us to speak to anyone at L&G regarding clients plans with an email helpline the only method moving forwards.
- Final nail in the coffin, ITM revamped pricing structure, alternatively a very tight timeline to make other arrangements by 31st January.
- Essentially if the new increased upfront payment is not made by 31st Dec, all ITM L&G schemes redundant at end of January.
Thinking aloud, three positive outcomes (or minimum expectations from L&G) would be:
- In event of needing to transfer scheme to alternative provider
- Assistance in form of apology letter we can provide to employers explaining the decisions they have made to help manage a smooth transition.
- Contribution towards our and/or employer costs associated with transferring to alternative arrangements.
- Allow ITM employers to access old Manage My Scheme service within the designated timeline or contribution towards increased ITM fees
- Here we would require guarantees from both L&G regarding the longevity of this solution and thus over the longer term I think I would prefer the former solution.
Finally, we are (an IFA) with 200 or so L&G schemes but I suspect the changes are impacting the FSB Workplace Benefits/IFS Employee Benefits who were also sucked down the ITM route.
A test of L&G’s metal
This kind of thing happens. L&G were not aware of the action of ITM and might argue that ITM is an independent organisation whose pricing is no business of theirs. I am pleased to see that the initial response of L&G management so far has been positive. They have recognised that this is their business problem and promised action.
The positive approach adopted by the IFA above is an obvious course to follow.
This is an opportunity for the IGC to exert some control. While the cost of auto-enrolment itself – fall to the employer – when those costs become intolerable, the consequences can fall on the member. High operational costs for auto-enrolment mean less in the kitty to fund the pensions. In extreme circumstances – they can curtail the activities of the business.
The fundamental problem goes back to the decision by L&G to move from a supported to an unsupported approach to small employers. This is not the time to argue whether promises were broken, but it is a time when attention has to be made to the matter in hand.
The ITM eAsE issue needs to be addressed immediately. January is a tough month for payroll and especially for the accountants who run payroll bureaux. This is not the best time to reorganise auto-enrolment and L&G must recognise some responsibility to rectify.
EAsE was and remains an endorsed solution. If that solution is no longer tenable for employers, it is imperative L&G takes back control of the payroll interface.
To quote from LGIM’s recently published “Retirement Income Riddle”
“As an industry we have a duty of care to support people in their decisions, to ensure they get the retirement they want, need and deserve. Providers, like ourselves, need to do more to help engage consumers and guide them to making better decisions”.