Auto enrolment isn’t SERPS

workplace pensions

The original AE workplace pension

Many years ago I was involved with  the Kingfisher Retirement Trust, a bare COMP that just about competed with SERPS for value because it offered employees lower national insurance and the semblance of a pension.

Kingfisher (now B&G) offered a final salary scheme which you could opt into, about 5% of staff did – they were white collar and understood the difference between the KRT (a non contributory DC scheme funded by rebates and a 1% employer contribution and a sixtieth plan.

KRT was auto-enrolled and had a huge take-up. Unfortunately most of the people in it, had no idea that by being in it , they lost out on service in SERPS/S2P for an uncertain pension pot run first by Aviva and latterly by Eagle star.

One union called it the worst scheme in Britain, but -being auto-enrolled , it had massive take-up and had hardly any opt-outs.


Complete with member confusion

KRT worked on paternalism, there was a trust behind it and the employer believed that members were better in an insured with-profits fund than in the state pension. For a time the contracted out rebate made this kind of “bare-comp”feasible, but over time the rebates fell – frankly the plan fell into disrepute and has since been replaced.

What worried me at the time was that so many members thought that KRT was a company pension – which for them meant a plan that gave them a wage for life based on service. This view persisted because so little information on the plan got to members. There were for instance unit-linked investment options – but of the 100,000 + members, hardly a handful used them.

Members weren’t so much confused, but bemused. They had no idea what they were in and only got to find their hopes of a wage for life were false, when they got to scheme retirement age. I may be a little harsh on the trustees here, but knowing one or two, I think they’d share my characterisation of KRT as “not what it seemed”.


Are member’s confused by today’s master trusts?

The excellent Ray Chinn – who is a customer champion at NEST, reported that a high proportion of NEST members thought that NEST- being a Government pension, would give them a Government pension.

This is a cosy enough place to be for NEST, it is unlikely that many members will opt-out and they can carry on building up their investment pot, with the problems of explaining the misconception left to the next generations of NEST trustees and management.

NEST is not the kind of organisation that likes to disturb its members – it famously runs a low-risk default for youngsters because it thinks young people, discovering their investment pot has gone down, might get put off saving. It’s the kind of wonky thinking born out of a deep-rooted grounding in state sponsored defined benefit schemes where members take no risk.

The golden rule of this kind of thinking is to let sleeping dogs lie, which is precisely why Adrian Boulding and NOW’s disruptive 20 year charge projection table has created a furore.

Here’s Adrian reigniting the blue touch paper after Darren Philp of Smart went to press over his table

Of course Adrian Boulding is not impetuous, he knew just what he was doing and he did it well. He asked us to think about what we were choosing as workplace pension for our staff.

I am hoping that staff in workplace pensions will start asking where their money is going because many of them don’t give the investment of the money a second thought. This is clear from this vox-pop from Quietroom, from work done by Investec and by Ignition House


We can’t let people sleep-walk into retirement

Some time ago – we took the decision to scrap the state second pension (aka SERPS). We did so because we wanted people to own their own investments, data and retirement choices.

We decided to go the funded pension route, and what’s more, we decided that there should be multiple pension providers competing for our money.

But there is a strong group of pension experts who do not share my belief that we should tell people that

a) their money is invested

b) how their money is invested

c) how these investments are doing

These people are left of centre paternalists who see the success of workplace pensions as dependent on people being kept in the dark, asleep to what is happening to their money and blind to the performance of the investments (both in terms of returns and ESG factors).

These people are like the Trustees of KRT, they are not evil or in anyway malicious, they just think the interests of ordinary people are not best served by telling them what’s going on.

It’s well worth tapping through to the rest of the thread. Gregg and I are friends but we hold radically differing views on the need for engagement.

I think that Gregg would ultimately like to return to the days of SERPS. That wouldn’t be such a bad thing in an abstract world where theories dominated. I was nearly sacked for being quoted by Barbara Castle as saying that all private pensions aspired to the efficiency of SERPS.

But the world has moved on and Gregg is now working for a workplace pension scheme which has well over 4m members, each with an individual pot. It is a much better scheme than KRT but it is still a DC plan which depends on member contributions. Those contributions are currently too low to possibly match the benefit of a company pension scheme as KRT members understood “company scheme”. Contributions are high enough to make People’s give ordinary people more than SERPS, but people have the opportunity to use People’s to get themselves a great deal in retirement.

To do that, they need to feel that People’s pension is worth investing in. I urge People’s to start promoting the great things it is doing with its default and the excellent outcomes that arise from its low charging structure and sensible investment options.

 

workplace pension 5

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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3 Responses to Auto enrolment isn’t SERPS

  1. Bryn Davies says:

    There’s a lot here I would take issue with. But top of the list is the statement that “Contributions are high enough to make People’s give ordinary people more than SERPS“. Can you provide what evidence you have for this, remembering that S2P wasn’t SERPS? My guess is that it’s only true to the extent that AE contributions are higher than those that were paid, in effect, to SERPS, so it is not a like for like comparison. The complaint by the pensions industry was always that the contracting-out rebate wasn’t high enough, suggesting to me that investing for your pension was less efficient.

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