The 21t century system downgrades “retirement benefits” to being part of “intangible reward”.

The UK workplace pension should not be a “benefit” and part of “intangible reward”. We do not get “intangible reward” as getting paid!

The workplace pension is currently seen as a “tax” like national insurance for employers

As I examine the market for Collective DC I find myself talking with trade associations and unions who take responsible for the affairs of thousands of small companies. Some start ups use the HMRC’s payroll to establish a workplace pension, some more established small firms are looking for an advantage from being in one of the large DC plans and there are a large numbers of businesses who out of habit have paid sums to large DB schemes such as LGPS to be members of an ongoing DB plan. So a wide range of solutions for smaller employers but with one thing in common.

All employers are subject to the Pension Regulators Auto-Enrolment framework and have to pay at least minimum payments against band earnings to obey the law. They get fined by TPR if they don’t, they have to be compliant,

Right now, the vast majority of small employers see compliance with the rules for paying into workplace pensions as what their duties are about but that may change. When we move from “pot to pension” which will happen when the dashboard arrives and displays the pot as pension, then I suspect that a claim that CDC pays up to 60% more pension will become more real for small players. Infact every employer, if they consider that they are putting by a part of staff’s wages for deferred payment of pension, will start thinking of pensions not as a benefit but as “reward”.

But most employers – especially small employers – see “pensions” as an extra tax they have to meet on employment. We need to change “tax” for “pay”. Here’s a typical description of pensions that describes pensions by focussing on contributions not outcomes

This is what employers see. They do not see and do not sell to staff the idea of this money paying people in later life.

The auto-enrolment system has not yet been considered as part of pay – of reward – of deferred salary – call it what you want. But if workplace pensions start being seen as pensions (the Pension Schemes Bill will help that to happen) then CDC will be seen by employers who compete for staff in recruitment markets dominated by rates of pay.

This is why pensions used to be so much part of the pay settlement between employers and their staff, pensions were and still are in some sectors , a business where union pension officers take the auto-enrolment rules as a means to negotiate pay and deferred pay (pension).

I see the unionised parts of the employer market as critical to the success of UMES CDC – that’s the workplace pension part of the new pension focussed workplace pension!

Unions need to start negotiating with employers based not just on pay today but deferred pay from retirement and if they cannot increase the amount paid into pensions, at least improve the amount coming out of what’s saved into.  If unions and unionised employer can come to an agreement to move from workplace pensions into DC to a workplace pension paying higher deferred pay then a pay rise over inflation has been achieved, at no cost (over what would have been paid as part of the standard agreement).

Giving pay rises over inflation at no extra cost to the employer – inflationary?

The answer is  a resounding no when the extra pay is deferred to retirement. We know that millions reach retirement with not enough to pay them a living wage for the rest of their days. Putting all employers in retirement in a position to meet bills and not rely on others (most especially the tax-payer) is not inflationary, it is about intergenerational fairness and a way of making each generation confident about their future.

Putting pensions back as part of our “reward”

I thought that was what private pensions were doing when I was young but we threw the private  DB pensions out as something we could afford for younger people (many people never got a DB pension and were dependent on state pension and SERPS. Auto-enrolment opened the door to a much wider group of workers and though only 55% of workers are saving into workplace pensions, we have another Pensions Commission working on expanding that number towards 100%.

We may not be able to increase contributions to the 12% of pay that is compulsory for employers to pay into Australian Super, but we can increase the deferred pay from workplace pensions into which we’re auto-enrolled by up to 60%. We may think that the DC system we have today is sufficient but I think I’m speaking there for those who  are benefiting most from DC workplace pensions – those in the pension industry. For those who see pensions as deferred pay, CDC may be a better way to put money away for later life.

Right now most  employers don’t see their workplace pension as “deferred pay”, if they did they’d value it and so would their staff. Pensions are part of  “reward” not “benefits”.

Turning getting paid later into a positive.