The economic signals are bad; Britain stands on the brink of a recession. The market is pricing in a doubling of interest rates , inflation is expected to go to 10%,people are paying taxes at an all time high and wages and pensions are not keeping up with these extra liabilities.
Millions of ordinary people are dreading the next 24 months, but pension experts, led by those who have most to gain by increased minimum contributions to workplace pensions, insist that no not pushing them through the Queens Speech was a “missed opportunity”.
Pension providers are ceaselessly telling us they want to improve member outcomes. But surely the outcomes for members faced with the choice of defaulting on debt or staying in workplace pensions will be improved by opting out of the latter. And for those, “just getting by”, the choice may be to struggle on – paying all bills but depriving them and their families of the simple things in life they should take for granted – and the pension experts will continue to take for granted.
For those who have forgotten how auto-enrolment works..
Opting out of AE is not a once and for all decision, people who have opted out are auto-re-enrolled at each re-enrolment date. Opting-out can be the equivalent of a pensions holiday and it’s an option we should not be overly exercised about.
Staff who have opted out need to be recorded as dong so both by employer and provider. If they are not reminded by re-enrolment, they will likely find themselves enrolled when sooner if they move jobs. We forget how hard it is to consistently remove yourself from pension saving.
And many people know how the pension system works. We think nothing of telling the pension wealthy not to contribute if they have a protected Lifetime Allowance, that’s because they people matter to pension experts, they are the high-earners that employers value. But pension issues are even more important for those with low incomes and low expectations for their state pension.
For these people there is little incentive to stay in a workplace pension. Since the abolition of the “savers credit”, savings into workplace pensions work against savers when they cannot get to their full entitlement to the state pension. If they could afford advice, or even get targeted pension guidance from Money Helper, they should be told that starting saving into a workplace pension close to retirement is a bad idea. The pension poor are aware of this and thought we like to call this behaviour “shameless”, is it any different from the high-roller avoiding paying supertax on the top slice of their pot?
The incentivisation of low-earners to stay in pensions should be one of the reforms the DWP considers, as and when they look at the basis for pension credit. Pension credit and auto-enrolment could work a lot better together, pension credit was a child of Gordon Brown. conceived in an era that predated mass saving.
A bad look for providers
In truth, all this talk about “financial vulnerability” seems to fly out of the window, when savings rates are under discussion. This does not go un noticed.
I am going to continue to point out that the same providers who advocate higher contributions through the enactment of the 2017 AE reforms are avoiding getting involved in issues to do with pensioner poverty. These issues are often triggered by participation in the plans they foister on vulnerable savers.
Help for employers
Is anyone in pensions thinking about the VFM of AE contributions from an employers point of view? Do employers want to see staff wellbeing put at risk by denuding the take home of employees who may struggle to pay the fares to get to work? Who wins when such employees find not working more lucrative?
And the same can be said for employers who are often required to include short-term workers in plans that are likely to be left behind as these workers return in later life to their countries of origin. I am thinking of the many seafarers with small pots in master trusts who may never be traced. Try finding your seamen who are back in Manilla.
One of the solutions to the small pot problem will be the pension dashboard, we should make sure that the URL is engrained on all who have small pots so that they do not lose these small pots, but we should also make sure that employers can “sell” the AE pension contribution as a top-up to the reward for low-earners. I suspect that many employers with high numbers of itinerant workers – and Brexit may have dispersed workforces further – are able to sell pension pots as payable anywhere in the world as deferred pay. Otherwise the employee contribution for the itinerant worker looks like just another tax.
Increasing an unwanted pension tax with so little support from the pension system is a tough ask. My bet is that the inclusion of the 2017 AE reforms will happen only when we have a pension dashboard up and running. That is the provider’s quid per quo. A properly functioning pension dashboard that an employer can point to as the means of getting value for money saved, is a pre-requisite for getting buy-in from employers and staff.
Tough times ahead for employers , now is not the time
And coming back to my original subject, the implementation of the 2017 reforms, has anyone stopped to think of the choices employers have right now?
Employers have no choice but to pay higher national insurance (supposedly for a better NHS) and have to swallow increases in energy prices and the impact of inflation from other suppliers. Consumption is unlikely to improve in a recession, meaning that tens of thousands of small businesses will have choices as to whether to protect salaries through inflation adjusted salary increases or pay more into pensions. Frankly we are kidding ourselves if we think that any Government is going to take on the CBI and Federation of Small Businesses when demanding more for pensions.
Doing more with what is in the system
Like the greedy cuckoo, our auto-enrolment providers want to feed on the wages of the poorest, drain what little profit employers will be making in the tough years ahead. They want to line their nest at the expense of ours, by demanding enactment of contribution increases at the least appropriate time.
If these providers want to make the most of the savings we give them, they should invest in systems that empower members to turn pots to pensions or transfer pots to pension providers who do.
Right now , I see the cuckoo in our nest, while our nests remain bare of feathers. The cuckoo should stop squawking, accept that reforms will have to wait and get on with improving the value of our money.