I’m frustrated reading an article in the FT which contains claims from unions that members of pension schemes are choosing to reduce or stop contributions because of the cost of living crisis.
It cites the case of one member of a bank scheme who has cut her contributions from 3 to 2%.
I’m sorry unions but you need to get a better evidence base for what you are saying.
Last week we had claims from some insurers that there was yet no evidence that contribution flows were reducing. One – Canada Life – claimed that as many as one in five employees were looking to cut or cease contributions. Penfold – a personal pension provider claims pension opt-out are up 29% since March. The Times has published the story, again with minimal shared data.
The picture is confused and we lack any proper information on what is going on. We will get data eventually, via HMRC’s reporting and the publication of pension data by the Office of National Statistics, but there is a lag. We need information from the front line.
Payroll is on the front line
It is payroll who receives and actions requested changes to people’s pension contributions. If anyone knows, payroll know.
Next week (beginning September 5th is National Payroll Week, organised by the CIPP. I will be writing this morning to the CIPP to see if we can get some timely information from their members on what is actually going on.
Because right now, pension contribution information is sparse and what we are being told looks like it’s either politically or commercially motivated.
Action needed – payrolls need clear guidance.
As I have been saying on this blog, we need firm guidance from TPR on what employers can and cannot say to staff when staff ask to reduce pension payments. This particularly applies to payroll who are on the front-line when it comes to actioning employee requests.
They cannot encourage staff for fear of being prosecuted by the regulator for “incentivising” (an action which profits the employer at the employee’s expense).
Employers can mitigate the impact of an employee’s contributions falling below the AE minimum. It can choose to continue to pay into staff pensions till the next re-enrollment day (when staff contributions automatically increase). This is good practice but it’s still running the risk – if publicised -of promoting staff to swap pension contributions for cash in hand.
They can use smart pension providers (like Smart ) who have the ability to pause contributions and automatically instruct resumption at a later date – prior to re-enrollment.
Or – as the FT article suggests – they can speak to advisers and establish what their best options are.
However, the discretionary advisory spend of most small employers is reducing even faster than the spend of their staff. Most of the 1.2 million employers participating in auto-enrolment have no access to pension advisers or the means to pay for them and they are being hit hardest by energy prices than anyone.
Which is why payroll is the most important source of information for most businesses. Payroll understand AE rules, work with the Pension Regulator and are typically the first point of call for employees of small businesses.
Even if payroll is outsourced, typically to a bureau run or subscribed to by the firm’s accountant, there will be resource for staff from the outsourced provider.
Unions need to be better targeting their resource.
The problems around cost of living are addressable by large employers like the banks and retailers and those in the public sector.
The reward and HR functions of these organisations are fully aware of the financial well-being for their staff. The bank mentioned in the FT article has targeted a cost of living bonus payable to everyone below senior management grade – a targeted benefit.
The problems lie elsewhere. The unions need to be finding ways of talking to staff who they otherwise would not talk to, who are in non-unionised employment.
Payroll is a natural way for unions to influence good practice (and in doing so – increasing their profile).
Are payrolls ready for the cost of living challenge?
I don’t know and I hope to find out more in my meetings with payroll people as a result of the CIPP’s promotion of “national payroll week”.
Of course pension payments is just one of the many challenges they will be facing. But pensions are typically the largest discretionary payroll deduction (you can’t not pay tax or national insurance).
So the payroll cost of living challenge, may well be a pension challenge.
Next week looks like a week to ask payroll to help us with real time information on contributions, and for pension people to help payroll with simple solutions that can be implemented to help employees through the tough months ahead.
