Pensions insight
Henry Tapper, director of First Actuarial, discusses a workplace pension game-changing idea and argues for improved data transference Fantasy pensions?
W hat should we make of a recent report in The Daily Telegraph that the pensions minister, Guy Opperman, is meeting with pension experts to consider a system where a workplace pension could follow the employee, rather than employees joining new plans with each new job? A payroll luminary commented that given the industry’s reluctance to work to a single standard for pension data transfer it is time-consuming to prepare and upload files to pension providers. If you are running your employer’s payroll, or a payroll bureau, then I imagine you’re not overwhelmed with the prospect of ‘clearing’ contributions to an unlimited universe of workplace pensions. Government satisfaction with the success of automatic enrolment (AE) belies the strain it has placed and continues to place on payroll. Some might argue that the Department for Work and Pensions (DWP) has never seen employers as key stakeholders and that AE is really the first time that payroll operatives have had major interaction with one of its policies. This certainly chimes with my experience of introducing payroll champions to Sir Steve Webb in 2013; but much has changed, and the Pensions Regulator is now almost as familiar to payroll as HM Revenue & Customs. It would be easy to argue that the pensions minister should know better, but this would ignore evidence that the tectonic plates of technology are moving. We are but a minor tremor away from open pensions which might yet make a pensions dashboard a reality in 2019. Success of the pensions dashboard is predicated on the adoption of a set of data standards that could in time be operated by payroll to ‘clear’ contributions to the workplace pension of the employee’s
choosing. Certainly, this would help restore consumer confidence in pensions. However, the DWP estimate that unless some way is found to consolidate workplace pensions, we could be looking at nearly fifty million abandoned pension pots by 2050. With the average worker expecting to start with eleven employers in a lifetime, ‘pot profusion’ threatens to derail the AE express. While a dashboard might allow multiple pots to be viewed on a single screen, the prospect of organising some kind of retirement income from upwards of ten workplace pensions is daunting. Small wonder then that Opperman is open to the arguments of workplace pension providers. Small wonder, too, that workplace pension providers are looking to limit pot proliferation. The financial implications of managing millions of small pots and small potholders are dire. While pot proliferation may not present an existential threat to the likes of NEST, NOW:Pensions or the People’s Pension, it will limit their capacity to bring down costs over time and to improve service. Some of these providers are openly touting ideas that to pension traditionalists seem as outlandish as ‘clearing’ seems to payroll. One of these ideas has been dubbed ‘prisoner exchange’ and involves one workplace pension provider swapping thousands of abandoned pots with another contributions to an unlimited universe of workplace pensions ...the prospect of ‘clearing’
provider. This time, it is the provider, not the member, calling the shots, but the concept is equally fraught with risk. If we take into account the advances in technology and the proliferation in pots, we can make more sense of government interest in workplace pensions following the member. But it is worrying that payroll does not seem to have a seat at the pension minister’s table. Payroll could be determining not just the shape but the pace of change. A recent report on the (lack of) quality of the data reaching providers tells us AE compliance may not be quite as comprehensive as the DWP would have us think. Surely, it must be impressed on government that no move to ‘clearing’ happens until pension providers and payroll can be sure that a single standard interface model is working properly. Organisations such as pensionsync have pioneered the technology that could make clearing possible; indeed, pensionsync has commented on social media that a system of clearing could create a more transparent and efficient way to operate workplace pensions. The feedback I am getting, however, is that even when new technology is in place, pension providers are still applying ‘lipstick to the pig’. Address errors on one insurer’s workplace pensions database included data imported by an application programming interface (API), but it turned out the API had been delivering data to an insurer’s spreadsheet which was then used to manually key entries into the insurer’s system. Some would say that you couldn’t make it up. Until we have moved to straight-through processing for all AE interfaces, we cannot contemplate moving to the fantasy of payroll offering universal clearing. n
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Issue 45 | November 2018
| Professional in Payroll, Pensions and Reward |
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