Pensions
Public interest on hold
Henry Tapper, chief executive officer for AgeWage, provides insight to disagreements and delays dealingwith pension pot proliferation
H aving watched the infighting of the trade bodies within the pension industry, it’s refreshing to write for the CIPP which properly represents all of the payroll industry (and a lot of the good that is going on in pensions). I am sorry to write ill of pensions but as I approach my 60th birthday, I don’t see much point in holding back. It is time that those representing the different factions within pensions stopped throwing rocks at each other and concentrated on what really matters – improving savers’ retirement outcomes. To do this, the two principal trade bodies – the Association of British Insurers (ABI) and the Pensions and Lifetime Savings Association (PLSA) – which represent the commercial interests of pension providers should work together. In particular, they need to collaborate in the interests of savers who have multiple pension pots resulting from moving from one workplace pension to another resulting from auto-enrolment. Pension people have known for many years that a problem was brewing. The Department for Work and Pensions (DWP) estimate that by 2050 there will be 50,000,000 ‘orphaned’ pots; and the Pension Policy Institute tell us that already there are some £20-billions in unclaimed pension pots to date. There are few winners in this relentless proliferation of pension pots. Pension providers define ‘small pots’ as those with less than £1,000 in them, and ‘micro-pots’ as those with less than £250 in them. Each pot has a cost of maintenance and a cost of claim when the money is paid out. In addition, pots carry a fixed charge to providers – being a general levy on providers based on the number of members or policyholders under their control. Faced with increasing levies and minimal revenues from assets managed in the pot, the commercial providers have introduced fixed charges on
pots which are small enough to keep big pots competitive but large enough to restrict or even prevent growth on the smallest pots. The government are about to cap these fixed charges to ensure that small pots do not find they are being eroded by a composite charge greater than the 0.75% charge cap, which simply adds more complexity to an already complex system. ...few winners in this relentless proliferation of pension pots. The economics of running an employer scheme can be very complex. Tesco, when it decided not to run its own workplace pension, ended up participating in three schemes. Two were with Legal & General (L&G), one for high earning active members, and the other for low earners (the driver being the net pay anomaly). The third scheme was for deferred members with very small pots; the members went to Smart pensions. The logic was that Smart, being smart, could run small pots cost effectively while L&G, being commercial, would only give Tesco the terms they wanted if the small pots went elsewhere. Once more, complexity arose because of a systemic failure within pensions to clean up its act. Last summer, recognising that the pensions industry was not getting anywhere, the DWP set up a small-pots working group which reported back to government in super- quick time that there were things that could be done to sort the problem: ● duplicate pots could be consolidated by trusts managing two periods of service ● members could be exchanged between commercial master trusts
● a system of ‘pot follows member’ could be introduced. The working group ruled out a proposal that would have meant payroll administering contributions to multiple schemes so members could decide which pot they wanted the employer to contribute to. This was partly due to effective lobbying from the payroll industry and especially the CIPP. The original working group has now been superseded by the ‘Small Pots Co- ordination Group’ under the chairmanship of Andrew Cheseldine; a good choice as he is experienced, competent and gets on well with everyone. He will need all his skills as reports of the initial meeting suggest that the ABI and PLSA, representing insurers and trustees respectively, are not co-ordinating. The PLSA says that this is their ‘baby’, but the ABI point out that many of the master trusts are funded by insurers and that they want group personal pensions included in the discussions. Meanwhile, progress towards establishing common data standards are bogged down in wider issues to do with the pensions dashboard. What this means is that we are unlikely to hear more on this subject until June, and that the problems for members of workplace pensions are unlikely to be addressed this year. With the dashboard already two years behind its scheduled opening, the proposed timeline to start offering a single look at all data by 2023 also seems to be slipping. Meanwhile, consumerists – including myself – have been lobbying the DWP to do for pensions what HM Treasury did for banking and bring in the Competition and Markets Authority to ensure we get ‘open pensions’ just as we got ‘open banking’. The frustrations with the pace of change within Westminster may make this happen, sooner than the PLSA and ABI expect. n
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| Professional in Payroll, Pensions and Reward |
Issue 70 | May 2021
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