Contrary to the messaging from those who have postponed the attention to pension plan and cancelled a Nest Insight seminar, the issues surrounding our day to day finances are not put on hold till we have mourned the queen.
Yesterday evening I received a considered email from Charles Counsell, TPR’s CEO which answered question I have about employers can behave when staff have trouble paying household bills and pension contributions. I quote it in full.
Thank you for your email regarding employer messaging on staff pausing auto-enrolment pension contributions as increases in the cost of living put a strain on people’s finances.
I’d like to explain our guidance to employers on this issue. As this is our official public position, I can see no reason to object to you publishing an accurate reproduction of our points in full.
I believe, even in difficult times, it is important people maintain their pension contributions, whenever they are able to.
Employers who seek to induce staff to opt out risk enforcement action and financial penalty – they cannot encourage their staff to reduce their contributions below the statutory minimum or opt out. It can only be the saver’s decision.
Staff can reduce their contributions and continue saving, but they would not be saving under automatic enrolment if contributions are less than the statutory minimum and the employer would not be required to maintain the employer contribution.
Employers who wish to keep contributing to their staff’s pension can do so. Pensions are a valuable part of an overall benefits package so it can be in the employer’s interests to do more than the minimum required by legislation.
While staff can ask to opt out, we are calling on employers to encourage employees to seek impartial guidance from the government-backed MoneyHelper service before they make any decisions.
At the start of August, we updated our website, for example, on pages covering employers’ ongoing duties and communicating with scheme members as well as under opting out, contacts for scheme members and communicating and reporting for DC schemes to this effect.
MoneyHelper provides pension and debt specialists who offer free guidance by telephone or online to help people find a way forward. It is a holistic service with financial guidance including information on dealing with debt, benefits, savings and avoiding scams as well as pensions and retirement.
We also know scammers thrive during periods of uncertainty and when household finances are being squeezed. Therefore, it is vital savers can spot the warning signs of a scam and avoid them.
This is why we advise that any staff seeking to transfer money from their pension should be directed to the ScamSmart website. This will help them get to know the warning signs of a scam and check the firm that they are dealing with.
This complements other saver protections, including rules meaning savers looking to transfer a defined benefit pension pot of more than £30,000 must take regulated advice and regulations, introduced last November, which empower trustees to halt suspicious transfers in certain situations.
We will continue to keep our position under review and work with our partners in the pension sector to ensure we are providing consistent messages.
This is the straight bat response that I both expected and wanted. I will share it on this blog and with the CIPP, with whom I am working on this.
But it still leaves employers in a difficult position. Where it is clear to an employer that staff are both paying into pensions and not paying bills, the employer cannot incentivise staff to stop paying into the pension , even by covering both employer and employee contributions. The risk of contagious opt-outs and pausing is too high. Even if the business can afford to help out – it takes huge risks whatever intervention it takes.
Passing staff to MoneyHelper is the TPR’s solution to the employer’s dilemma.
While staff can ask to opt out, we are calling on employers to encourage employees to seek impartial guidance from the government-backed MoneyHelper service before they make any decisions
But this may simply be transferring an intractable problem to those better placed to give the same answer. Meanwhile the link between staff and employer (payroll) has been broken.
The massive intervention that the Government announced last week does not reduce the cost of energy to households and businesses, it simply transfers the cost from from 2022 to subsequent years.
This really isnt true. Households (today) will be much better off. Household tomorrow… not so much. https://t.co/kwEslr56r1
— Torsten Bell (@TorstenBell) September 8, 2022
Which brings me back to my central concern about continuing to enroll and re-enroll those on low incomes into AE schemes at this time. Without explaining the option to “pause” till re-enrolment (or as Smart can do – till a date chosen by the saver), the employer is no longer in control of its own reward strategy and their staff’s financial well-being is no longer in its hands.
Whether big or small, good employers are mindful of their staff’s physical and financial well-being. They have to be, their human resource needs to be productive.
For many who have been auto-enrolled for up to ten years, real wages have fallen and some have fallen into absolute poverty. The regulations that Charles quotes from , were devised to ensure the staging of auto-enrolment was successful, but they need to be revisited. We must move beyond “employer duties” and consider “staff welfare”.
The reality for many people is that even with the cap on household and business energy bills, many will not be able to afford to pay into pensions and pay household bills
Summary. The PM has
– rightly done the inevitable & capped household energy costs. It will make a huge difference but winter ahead will still be grim
– given businesses a 6 months reprieve to adjust to high prices (more help to come for some)
– hidden from the fiscal implications
— Torsten Bell (@TorstenBell) September 8, 2022
For savers and businesses , this continues to look a bleak midwinter. We need to find a better way to spread the cost of pension funding.
One thing that is for sure, there is no excuse for HMT not to be relieving non-tax payers auto-enrolled into public and private pensions of the 25% excess payment they are making under net-pay. TPR and DWP are powerless to comment. This is the concluding paragraph of Charles Counsell’s mail to me
On the subject of net pay, the Government has announced its plans for addressing net pay arrangements and this remains a matter for HMT.
Thanks to TPR…..
TPR do not have the power to change the law, they can only provide guidance on how the law is interpreted. It would seem that there is no guidance that can currently be offered beyond what Charles has written.
Thanks to him and to his team for this considered response, made at this time.
But we need more from Government
The guidance on TPR’s website remains the only help employers are getting but surely it is not enough. I have spoken to people in payroll during this “national payroll week” who tell me opt-outs are now running at 30%+ and “pausing” is increasingly commonplace.
TPR has no way to distinguish between an employee pausing and those switching to salary sacrifice, that’s because they do not get employer contributions reported to them under RTI. So they are reliant on whistle-blowing to know if employers are incentivising opt-outs and pausing.
So the rules they offer guidance on, are not easily enforceable, even if TPR still had a fully resourced enforcement team (that went in 2018).
So while good employers struggle to keep people “in”, bad employers will hide behind the rules and leave their workers to their own devices, either to leave pensions or leave bills unpaid.
As I write, we find ourselves without an announcement on our future pension minister, without an “attention to pension ” campaign and without any response from HMT on improved remedies on “net pay”.
I will be speaking on these issues in the opening discussion session of this year’s PLSA annual conference in Liverpool. If anyone has any view on how we can help TPR and DWP and employers to find a better way forward, please contact me on email@example.com .
Despite the intervention , this matter is not going away. The pensions industry needs a better response to the cost of living crisis than the demands of the law. We need better law, or a new interpretation of what we have. We need smarter options from providers. We need better RTI for TPR and we need a proper response from HMT to net pay. To sum up – We need to pay more attention to how people save into their pension.