Are pensions too hard for employers?
25 June 2018
This article was featured in the July - August 2018 issue of the magazine.
Henry Tapper, director of First Actuarial and founder of Pension PlayPen, explains that radical change is needed
The Department for Work and Pensions is exhorting us to get to know our workplace pensions, but they might do better to start with the bosses who set them up. How many employers could answer these five simple questions?
How do I transfer my old workplace pension to your one?
How do I take your workplace pension to my new one – if I leave?
How much do I pay for my workplace pension?
Where can I find out how it’s doing?
How did you choose your workplace pension?
I reckon most of those questions are in the ‘too hard’ box. Could you answer these questions for your employer?
The plain truth is that we are asking our staff to put a minimum of 3% of their band earnings and putting in 2% on their behalf, without knowing what we’re doing. Many employers used financial advisers and accountants to implement their workplace pensions, but once the initial work is done, these advisers are unlikely to be involved in the day to day administration or be on hand to answer such questions.
And yet, survey after survey over many years suggests staff expect employers to be able to help directly – or at least to ‘know a man who can’ (sorry that the cliché has no diversity).
I don’t think pensions are too hard for employers. But I think we are in danger of scaring employers away from being able to engage with these questions, because we tell them they cannot give advice.
...employers are not getting the basics of pension management necessary to help their staff
We have got to find a way for employers to feel confident enough to tell their staff about their workplace pensions – or else they will be in danger of never ‘knowing’.
Here are five simple answers to those five simple questions:
Here is a name and a number and an email of someone who can talk you through what you can do.
When you leave, we will give you a leaving pack which will give you clear details about how you can take your money to your new workplace pension.
You pay an amount to the workplace pension from your fund. If you would like details of how much, you can get a clear explanation following this link.
Our pension is compared to other pensions in a table which you can find following this link.
We have a full audit trail, not just of why we chose the pension but why we continue to use it for your and our contributions.
I wonder how many employers can answer those questions with the confidence with which I wrote them. Not many, I’ll be bound.
Does this suggest a market failure? Not yet it doesn’t. We are too early in the accumulation stage of workplace pensions staged through auto-enrolment for these questions to be asked regularly.
But that will change. We must expect staff to be more concerned about their investment in their pension over time. To the above simple questions, further questions will follow:
Am I getting my proper tax relief?
Where is my money invested?
How do I know my money is being invested responsibly?
How do I turn my investment into a pension?
What happens if I die?
And, even more difficultly…
Can I transfer the proceeds of my defined benefit scheme into my workplace pension?
Can I protect my pension from inheritance tax?
What is the most I can put into my pension this tax year?
How does salary sacrifice work?
I am seriously worried that employers are not getting the basics of pension management necessary to help their staff. They do not have financial advisers or accountants who are ready (and sometimes capable) of answering these questions.
It really is time that those who operate workplace pensions get out and talk to their employers about these things. A massive investment in employer engagement is needed.
It would be a commercially sensible thing to do. The inflows of new money from empowered staff should be impressive.
It would also be commercially sensible for workplace pension providers to sign up to benchmarking services that allowed them to be compared, both by employers and employees. That no such services are available today can be seen as the function of an immature market.
There simply is nobody out there at present capable of gathering the data to compare one pension with another. But all this will change. The winners among providers will be those who get close to their employers, help them with the easy and hard questions and share data with those who want to run pension comparison services, that give staff meaningful feedback on how their pensions are doing.
Pensions should never be allowed to be too hard for employers.