This is a blog that looks at small business owners and the testy relationship they have with workplace pensions. I am chair of one such business and have recently completed a long questionnaire from the Federation of Small Businesses asking about the workplace pension I set up for staff and how I feel about auto-enrolment. Quite a lot of the questionnaire is about proposed changes to AE, very little of it is about the outcomes of the workplace pensions.
We are still in the early stages of workplace pensions where the operational issues matter rather more than the strategic impact of all this saving. I am familiar with small attitudes. Between 2013 and 2019, http://www.pensionplaypen.com helped over 7,000 small employers comply with auto-enrolment regs and helped them choose workplace pensions for their staff.
We ran a balanced scorecard which allowed employers to rate workplace pensions offered them by cost to implement, payroll integration, investment, retirement options and brand fit. We started out seeing large employers choosing on investments and ended up with almost all employers choosing on the lowest cost to implement and the easiest schemes to integrate to payroll. There is more detail on the blog links below.
There is nothing surprising about this. Cost and ease of use are tactical considerations and very small businesses are unlikely to think about staff welfare , recruitability and staff morale as “pension issues”. Shoe-horning the thinking of the employers that went to NAPF conferences into a small business questionnaire is just plain dumb. One size does not fit all.
Cosmo Gibson
So when Cosmo Gibson, reacted to my blog yesterday suggesting Jeremy Hunt’s and HMT’s VFM plan would make SMEs accountable for their workplace pension decision I got this
Can’t wait to see how they’re drawing the line of cut off for ‘poor VFM’. This smells like something they haven’t thought through yet and which will only happen three years from now (if ever). No new contributions is missing the point – all you get then is a whole load more crap pension schemes in run-off to add to the already huge pile of personal pensions from the original 80s/90s debacle. If they really want to go big on this, they should be forcing consolidation.
Employers needn’t worry about getting sued anyway – they never had any responsibility for this, and the idea of making SMEs responsible for assessing the VFM of pensions is for the birds.
I made a comment about where there was a loss there was a claim ; Cosmo was clearly very riled as he returned with
There is no obligation on employers to do any assessment of the scheme they put their employees in except to check whether it is a qualifying scheme – a deliberate choice by legislators. If there were, AE would be dead as soon as the first claim went in because employers would refuse to take part if the result was potential legal action that finished their businesses.
VFM is for regulators to sort out – the market won’t do it. Which is why a small number of schemes (or, bluntly, one large scheme) makes sense. Actually, the more I think about it the more I am tempted to come to the conclusion that the whole investment-based approach was a giant missale to the public. Let’s face it, unless you’re putting in 20% or more your result is going to be disappointing and hardly anyone can afford to do that.
I take Cosmo’s comments seriously. He is pensions policy person at the FSB, he was the FCA’s points person on VFM and he’s someone who I get on with and respect. So this is strong stuff and based on evidence (rather than my opinion!).
If is exactly how I would feel if one of my staff or former staff tried to sue me for choosing Nest as AgeWage’s workplace pension.
Right now, whether your staff are in a crap pension or a good one, is not the responsibility of the boss, least of all if the workplace pensions in question were mainly built up with other bosses.
But here’s a thing
Some small companies become large companies. Small pension pots become large pension pots. At some time, employers will become more interested in the outcomes of workplace pensions over their operations (if only because their pot becomes relevant as they get closer to spending it).
We know from looking at other pension systems (especially Australia) that investment considerations become important to people when they start thinking of taking money out.
It may not be till 2027 that Jeremy Hunt’s proposals hit home (and they may never happen) but by then most employers will have been running AE for 10 years and a good number will be interested in VFM (even if they aren’t now).
While I shouldn’t have been expecting employers to be taking “outcome based” decisions on workplace pensions 10 years ago, I suspect more will do so going forward.
You can complete the FSB survey yourself.
FSB AE and workplace pension survey
If you are self-employed or a small business owner, I urge you to do so. The more data the FSB has, the more they can feed back to Government and the better AE and workplace pension policy will be.