If you remember back to the mid part of this fading decade, one of the issues facing the 1.4m employers who had to stage auto-enrolment, was which workplace pension to choose for your staff.
If you were part of that decision making, the support you got for making that choice ranged from the full prowess of a dedicated pension process to a finger in the air. Most employers were somewhere in between, using a variety of metrics to decide which workplace pension worked best.
Looking back, would you have chosen differently? I suspect you would have if your employer chose to participate in one of the workplace pensions that has decided to pack it in. They did so for a variety of reasons. One or two – such as Friendly Pensions found themselves under attack from fraudsters and had be taken over by a larger better Governed scheme (in that case Smart pensions). Others voluntarily withdrew from the arduos process of master-trust authorisation (bye bye the Welplan master trust), others tried but didn’t quite make it (a nod to Malcolm Delahaye and SuperTrust).
But these were all small players who have found or are finding new homes for their participating employers and their staff. There have been no catastrophic failures along the way, no “rip-off” workplace pensions (despite a few feeble attempts).
But clearly not all workplace pensions have fared as well as the best. NOW pensions has shown a remarkable capacity to lose in every competition it entered. If can be forgiven for being the largest provider of net-pay workplace pensions to employees who don’t pay tax, we might forgive them for over-hedging currency at the time of the Brexit vote, we might even forgive them their consistent underperformance of the one fund they offer investors. But it is hard to forgive their inability to get their head round Responsible Investment – they have Danish roots and a Dutch parents. NOW have – since opening their doors in 2018 given as lousy a deal to their savers as they have to their participating employers (who have endured admin foul-up after admin foul-up.
Despite all this , NOW pensions have gathered a huge number of employers and members , got master trust authorisation and have a new owner who are vowing to turn things around.
Can we simply phoenix past problems away?
It is easy for new management (in NOW’s case Cardano) to draw a line under the sand, find new trustees (Joanne Seagers is now permanent chair) and pretend that the past doesn’t matter. We see this in all lines of business and it’s called phoenixing. The public should not buy it. Though the terms of the deal between NOW’s previous owners- ATP and Cardano are not public knowledge, I would be very surprised if Cardano did not negotiate a substantial discount to the usual price for a functional master trust of NOW’s size – for the lack of goodwill.
NOW must set about restoring goodwill. NOW has introduced a monthly service charge to employers as well as the administration charge to staff. I wonder if this is the best way of restoring good-will.
Another example of a provider with a lot of making up to do is Legal & General, who for the first three years of the auto-enrolment staging period were the stand-out player. But the wheels came off the bus around 2016 when they introduced a requirement for new employers to switch to links to prescribed middleware. Rather than properly supporting this middleware, they blundered through the final years of staging, finally withdrawing from the small scheme market – despite previous promises made.
Legal and General, for all their brilliance as an investment house, has sunk to the bottom of the league table for GPP style workplace pensions. The L&G phoenix solution has been to buy into , invest into and promote Smart pensions as the workplace pension wanted to be – but could never quite become. L&G – like NOW – has a lot of goodwill to restore (among employers especially).
So how about the rating agencies?
Throughout the staging period for auto-enrolment (2012 – 2018) , I raged against the Pensions Regulator for its lack of conviction in promoting good quality workplace pensions. I even offered to licence our Pension PlayPen as the only fit-for-purpose service in the market.
Prior to its master trust authorisation service, tPR did run a kind of kite-mark for master trust and the first to attain the Pension Regulator’s seal of approval was the now defunct Welness Master Trust.
Welness were good at picking up kitemarks. Until 2018 defaqto awarded Welness a coveted five star rating. Just what this was awarded for, is hard to see, Pension Playpen would not show Welness as an option for those using its service as it refused to open itself to our due diligence process.
Frankly , when it comes to workplace pension selection , you get what you pay for. If you choose to go for free ratings such as tPR’s or defaqto’s, you got a marketing gimmick, if you had to pay for the selection (and Pension PlayPen charged employers), you got a proper rating which kept you out of mischief.
NOW pensions were consistently the lowest rated workplace pension from early in the staging cycle, other middle ranking pension such as People’s and Smart have prospered, NEST has always been at the top of the ratings , initially alongside L&G , latterly alongside insurers – Scottish Widows and Aviva, who’s propositions increasingly looked better value, the further into the staging process we went.
Where next for employer’s and their workplace pensions?
I have been considering this question as I have been thinking how to position Pension PlayPen for the future.
It’s clear to me that many employers are very happy with their workplace pensions and have no reason to leave their current providers.
Some employers have been happy and some have voted with their feet and switched providers.
There are a few employers who will have to find a new master trust , because their provider failed to make it into the new world but most employers participating in a failed master trust will find themselves novated to a new scheme without too much disruption.
I think it unlikely that where fees are minimal and there’s little business disruption from a dodgy payroll interface or poor auto-enrolment support, few employers will jump ship.
However, there is another agent for change that could become much more important and it’s one that has yet to be properly considered by employers, providers or regulators.
Value for money considerations could change everything
If we were to change the exam question from “how are your staff’s pensions getting along” to “how are your staff’s pension pots getting along, we could get some very different answers.
A proper analysis of the true growth of each member of staff’s pension pot needs to take into account all the money going into the pot, all the money coming out of the pot and all the growth within the pot, while the money is in there.
Technically this is known as the” internal rate of return on your money.” Knowing what interest you’ve had on your money is one thing, but knowing what someone else has got is another.
This information is now available to providers , IGCs and trustees through AgeWage. Most providers are happy to provide scores and many have submitted data in bulk to AgeWage to help us refine our scores (we hope to have 1m pots analysed any day).
As soon as the ordinary saver gets wind this information is available, I suspect the ordinary saver will start wondering why they can’t get it through their employer.
This is what excites me about workplace pensions and why I am considering the future of the Pension PlayPen as a way to distribute AgeWage scores.
It’s time staff know what the score is on their pensions
In the new year I will be considering the role of providers in the reporting to employers and their staff on the workplace pension plans they run for them.
I am talking with a number of providers about how this can be achieved and hope to generate a test user group of employers who can benefit from this reporting.
Of course employers and staff need more than proper reporting, they need a means to make decisions based on the information they receive and both Pension Pen and AgeWage can help them in this.
Watch out in the new year for further developments.