This morning I’ve been thinking through the ideas put forward earlier this summer about including all workers in a universal pension system. It’s good to hear that the FCA are doing something about this now, it need not wait till a Pension Commission , organisations such as SUEZ have shown that people who are not saving into a pension can save into a sidecar arrangement. Emma Simon of Corporate Adviser picks up how the FCA are doing there best to make it easy for employers to “include” anyone in easier savings than workplace pensions.
The regulator has sought to clarify key rules in a bid to encourage more companies to set up workplace savings schemes, alongside their main pension provision.
The Financial Conduct Authority said that perceived regulatory barriers may have hindered employers and savings providers from offering these schemes.
The FCA points out that only 7 per cent of UK employers currently offer a workplace savings schemes, despite evidence from Nest Insight that that can play an important role in improving employees’ financial resilience. The FCA’s most recent Financial Lives Survey found that one in 10 people have no cash savings, while one in five have less than £1,000 they could draw on in an emergency. Emma Simon points to a key concern in Government, the use of Cash ISAs isn’t doing much for the economy, saving in an invested scheme run by an employer can lead to longer term investment, of value to savers and to the economy
It adds improving financial resilience among the general population could also support economic growth.
There is a new tone from the FCA with regards the promotion of saving where the purpose is an employee benefit rather than a quick win for an adviser , a provider or the employer itself.
The statement seeks to address a a number of regulatory concerns around workplace savings schemes, including questions around financial promotions and whether this is a regulated activity for which employers need FCA authorisation.
The FCA says that communications from employers to educate or give employees information will not be deemed as promotion, provided there is no element of persuasion or incitement.
The question is whether arrangements such as Nest’s sidecar product can be delivered through employers to large numbers of employers using auto-enrolment (As Suez have proved work).
But it is clear that the FCA worry about employers who hold the money themselves and don’t have governance in place to ensure savers are protected.
It also adds that workplace savings schemes can be can be structured in a way that does not involve the employer carrying out a regulated activity, particularly where the funds are transferred to the savings provider rather than being retained by the employer.
And of course , like any regulator, there has to be bureaucracy that will make it hard for a savings scheme to be simple for bosses.
Employer should consider whether their particular model involves undertaking activities that could be regulated under FSMA or other financial services legislation.
The statement also addresses issues around National Minimum Wage regulations, and whether making a deposit to a savings account could be seen as a deduction from wages, taking employees below this minimum.
It says there are a number of considerations to bear in mind and employers should ensure funds in these savings account are held in the employee’s name, and there is no change for accessing or transferring money.
The statement also covers whether a savings provider should carry out customer due diligence checks in line with Money Laundering regulations and what they need to consider to ensure they remain in line with data sharing codes of practices in terms of employees’ personal information.
It also adds information for savings providers on complying with Consumer Duty and FSCS requirements.
Phew, the challenge will be for savings schemes to appear that keep the FCA happy and meet the needs of employers for whom too many lists of duties may make the idea is impractical.
But here I suspect the superior thinking of our financial services companies active in the workplace , will create solutions that work for smaller, less sophisticated customers – as well as large employers such as those already offering these schemes.
That the FCA is encouraging these sidecar plans is good news. Let’s hope that we have more inclusion and a small step towards a universal pension system where everyone feels a part of it.
More jargo what the **** is a sidecar? Surely the ISA could do the job by salary deduction