The DWP is reporting that most employers don’t shift workplace pensions. Tom Higgins and Alex Janiaud report in FT Advisor
Employers mainly considered time and financial resource, the reputation and security of a scheme, value for members and advice or recommendations from outside bodies when making workplace pension decisions, but the DWP noted the wide variation across employers in their responses to most areas of the research.
According to the survey, employers consider value for members through the lens of investment returns, and ease of communication and support from the pension provider, but still view the resource burden as the most significant issue when thinking about switching provider.
Of the few employers who had switched provider, dissatisfaction with their original provider’s customer service served as the main reason to switch.
I don’t think that any employer sees switching providers as helpful to staff or employer, it is a matter of last resort. It happened to me once, when First Actuarial ditched Prudential for Legal and General (both GPPs) back in 2012. It was a good decision, Prudential had withdrawn from actively selling its services, a decline was anticipated and a decline happened, L&G have been a good provider for active and deferred members of their employer’s scheme.
But it is rarely that simple and there is rarely the interest in the choice of providers as there was from the 100 or so staff employed by the consultancy at the time.
The key imperative for employers to move providers is either the prospect of better value for money or reduced pension costs. Provided that an external expert can give comfort that members of a scheme are not likely to be worse off, most employers will run with a business case for switching schemes if there is something in it for them.
The DWP should neither be surprised or disappointed about their findings. What is clear from reading the IGC reports of the contract based providers and the Chair statements of the workplace master trusts is that none of them concludes they are not giving value for money. On that basis, no employer has any obligation to move schemes based on these VFM assessments.
Clearly some providers have delivered better outcomes than others and the FCA have been trying to encourage some disclosure of absolute and risk-adjusted performance tables, there has been talk of tables for the third leg of the VFM stool , the member experience. But there is resolute resistance to “league tabling” or any kind of benchmarking where the implication of the information was that the workplace pension under inspection was not beating its peers.
Where there is an obligation on workplace pensions is where the scheme has less than £100m in assets and is classed as occupational (whether multi or single employer). Here schemes will have to justify there ongoing provision based on a VFM statement they conduct on themselves using net performance tables and an assessment of service that is subjective but open to external scrutiny (mainly from tPR) but potentially from other stakeholders – employer and employee.
Where the employer participates in a trust based scheme (whether solely or as one of many) , the capacity of that employer to move is much easier, as members can be transferred from one occupational scheme to another without consent. This is not the case with GPPs where the only power the employer can exert is to designate a new workplace pension and auto-enrol the workforce into that rather than the existing provider. This strands the pots of those who have moved and requires those pots to be moved with the member’s consent – and that is not always easy as members now ask what to do -stick or twist – stay or go.
Right now, there is no obvious failure among workplace pension providers, but there may be failures in the long tail of workplace schemes set up by employers under their own trusts. The DWP is rightly looking in the weeds.
But don’t think they will stop there, the long-term aim of the Government must be to improve VFM for all – following the Australian example.