PENSIONS
employee would have the right to identify ‘XYZ’ as their chosen pension scheme and expect their own and the employer’s pension contributions to be directed accordingly. This provider could be unfamiliar to you, meaning you won’t have dealt with its administration – although clearly, we expect they will have met a quality standard – but contributions will need to be remitted most likely from the first pay period, on time. To move to a lifetime provider model, we will need vastly improved common data standards and infrastructure, and perhaps a clearing house which receives all such contributions (on behalf of multiple providers) and distributes them to individual pensions accounts. But the key questions with such a switch would be for employers. Would they be as keen under lifetime providers to contribute fully to the workplace pension of their employees, to a provider unknown to them, and which may well be entirely different to the provider they have chosen and endorsed as their preferred (and indeed default) scheme for staff? (We expect that a default chosen by the employer will still be necessary.) Or would a lifetime provider model disincentivise employers, with them effectively saying
that if you choose to go your own way on your pension then that's fine, but they will offer the basic contribution? Or even worse, there’s a risk that the lifetime provider model might lead to a reduction in the backing the employer gives to its existing arrangements. This question of whether a lifetime provider model would affect employer willingness to provide good workplace pensions is going to be fundamental. "This question of whether a lifetime provider model would affect employer willingness to provide good workplace pensions
Work and Pensions (DWP), the Pensions and Lifetime Savings Association highlights independent research which finds that, when given the choice, more than two-thirds of employees want their employer to choose their workplace pension provider. It will be important for government to be clear on the demand for lifetime providers among pension savers. We have made many of the above points to the DWP in our response to its recent CfE. It’s a time of considerable change in pensions and around the area of AE in particular. The lifetime provider is at the conceptual stage, but something a little more advanced is government’s plan to extend AE to include removing the lower earnings limit (currently £6,240 a year) for minimum contributions so that every pound of earnings qualifies for a matched employer contribution and tax relief, and to lower the minimum age that someone qualifies for AE from 22 to 18. We still don’t know the commencement date for these changes but will keep you informed as soon as any further information is made available.
is going to be fundamental"
It’s also not clear if employees would want this change. In its response to the consultation from the Department for
Read the CIPP’s response to the DWP’s CfE here: https://ow.ly/mvxf50QIh6i.
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| Professional in Payroll, Pensions and Reward |
Issue 99 | April 2024
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