Feathering One’s NEST?

Following the Government issuing consultation at the end of October on pension scheme charges the debate continues on the underlying charges applicable for defined contribution workplace pension schemes and new schemes currently being set up for auto-enrolment. 

Yesterday saw Legal & General on the Radio 4 Today programme add its voice to the call to restrict pension scheme charges to 0.5%. 

This is below the level proposed in any of the three proposals in the Government consultation.

BROADSTONE believes the clamour to reduce charges to 0.5% is over simplistic and exposes the risk of reducing the level of choice available to employees as providers reassess if they wish to remain in the market. In the result of reduced choice and capacity more employers will be drawn towards the National Employment Savings Trust (NEST) which is the only provider with a public service obligation to accept all requests to join.

The irony of this is that, based on the current NEST charging basis, we will see many more employees incurring charges far in excess of those in the consultation document and dramatically in excess of the typical charges BROADSTONE can achieve in the market for clients.

NEST currently charges an annual management charge of 0.3% and a 1.8% charge on initial contributions. One estimate suggests to achieve the 0.5% championed by Legal & General, Which? and others an employee would need to be in NEST for approximately 18 years.

BROADSTONE strongly supports the notion that charges need to be minimised although our experience shows there has been a clear trend towards lower fees that are typically in line with those proposed in the consultation. As auto-enrolment increases dramatically over 2014 a breakneck push to lower fees further could result in reduced choice. Paradoxically this would see many employees, forced to join NEST as a default scheme, paying higher charges than the current prevailing rates available in the market.

In this scenario it will be difficult for the Government to avoid the accusation that the National Employment Saving Trust is feathering its own NEST.

Telephone: +44 (0)20 7893 3456

Email:  contactus@broadstoneltd.co.uk

Auto-enrolment – No Minister!

The Pension Regulator (tPR) published its first in-depth analysis of the initial implementation of auto-enrolment a few months ago. 

It revealed that in July it had launched investigations into 89 employers for possibly failing to comply with the Government's new rules, issued 38 warning letters and one enforcement notice. 

If large companies have struggled to understand the complexities surrounding the new legislation how many medium and small employers are likely to fall foul of the Regulator when it's their turn to stage?

A year on from the launch of auto-enrolment we will begin to see the volume of employers hitting their auto-enrolment staging date rising dramatically with many having little or no experience of workplace pensions. In May 2014 alone 12,000 employers are scheduled to stage with the vast majority having a fraction of the resources available to them that larger employers, who have clearly struggled, have had at their disposal.

Against this backdrop the message from Steve Webb, the Pensions Minister, has consistently been that the auto-enrolment regime has been set up so that ‘nobody needs to pay for advice’ and that the government has ‘legislated for quality’ particularly with the default option that the National Employment Savings Trust (NEST) has been designed to provide.

Our experience to date strongly suggests this is not the case. BROADSTONE’s view is that it is totally unrealistic for employers to plot a path through auto-enrolment without guidance from an experienced advisor. As the number of employers looking to stage increases sharply this will inevitably place a strain on advisors capacity to assist leaving short supply (and potentially increased fees) for employers that leave it late.

So sorry Minister we would strongly advise that employers seek to engage with an advisor as soon as possible rather than attempt to navigate their own path through auto-enrolment. This will avoid a rushed (or failed) implementation and the potential to fall foul of the Regulator.

If you’d be interested in discussing how we can help you please contact me.

Mark Howlett

CEO

Telephone: +44 (0)20 7893 3456

Email:  contactus@broadstoneltd.co.uk

Auto-enrolment: Many Happy Returns?

Auto-enrolment recently celebrated its first birthday amidst largely celebratory comments from the industry.

Whilst it is too early to draw any strong conclusions about auto-enrolment, commentators have pointed to the lower than anticipated opt-out rates and the numbers of employees auto-enrolled into workplace pension schemes including NEST as a significant turning point in the UK pensions landscape.

Just last week Joanne Segars, CEO, National Association of Pension Funds (NAPF) at their annual conference commented that, "like the economy, we can see the green shoots of pensions recovery."

The Office for National Statistics (ONS) recently published figures showing active membership of occupational pension schemes fell by 400,00 in 2012.

Figures released by the Department for Work& Pensions (DWP) claim 1.6 million workers have auto-enrolled in the first year so auto-enrolment will clearly reverse the trend of falling pension scheme membership and this has to be welcomed.

However, increased membership, in isolation, will not deliver the holy grail of providing an adequate pension in retirement. Whilst auto-enrolment will undoubtedly provide increased membership it will not guarantee a level of pension sufficient for members to live on.

The level of contributions into auto-enrolment workplace schemes are clearly too low to provide meaningful levels of pension for many of those individuals who have auto-enrolled in the last 12 months. The minimum level of contributions currently is negligible and even at its height in 2018 will only reach a minimum level of 8%.

For workers earning a salary of £20,000 this would see a minimum contribution level of around £1154 p.a. With current levels of contribution rates how many of the 1.6 million people auto-enrolled last year are likely to build a pension pot that will deliver any meaningful level of pension?

Broadstone welcomes the first birthday of auto-enrolment but recognises  that, for the majority of current participants, the level of contributions is currently far too small to deliver enough happy returns for their retirement.

If you’d be interested in discussing how we can help you please contact me.

Nick Rudd
Corporate Benefits Director

Telephone:  +44 (0)20 7893 3456
Email:           contactus@broadstoneltd.co.uk