State Pension Age Rise – An Insight into the future

The Chancellor recently announced that the increase in State Pension Age needs to be accelerated. This throws up some huge challenges for society.

 

Individuals must plan

We’re all going to be working longer and the temptation to allow the powerful forces of both procrastination and lack of foresight to do their worst and put off saving for the future is a strong one.

If individuals want to cease working sooner then pension planning actually becomes more relevant, rather than less so, when providing that replacement income.  Individuals must decouple the rising State Pension age with the time to cease working completely.

Pensions must adapt...

 

Government policy and the financial services industry must do a number of things now to stem this:

• Financial education in the schools to actively espouse the benefits of long-term savings in to a pension scheme.

• The Government needs to re-open the debate on early access.

• Pensions may have to end and become something else so they can be accessed for other socially helpful purposes such as health care provision. Or defer your tax-free cash as an invested lump sum to help. Or why not let a pension scheme run a retirement home for its pensioners. Part of the pension can be an income and another proportion of the pension could be accommodation and health care.  

Savers need to be encouraged to save and understand that it’s their responsibility to provide for themselves in their dotage. 

Employers - the front line

Employers are going to be at the front line of this problem. I am all for removing restrictions and allowing individuals more flexibility in their lives. However, there is a risk that employees will not be able to afford to retire.  Succession planning will falter, younger employees will be held back as older colleagues remain in the workforce and businesses will under-perform and potentially fail.

David Brooks
Pensions Consultant

 

Telephone: +44 (0)20 7893 3456

Email:  contactus@broadstoneltd.co.uk

Got your employee email addresses? It's crazy not to.

Over the past few months of working on auto-enrolment projects, we’ve turned up one piece of information that most employers have space for on the payroll file, but few are ever filled in - employee email addresses. Unless you have electronic payslips, they’re mostly a nice to have on a payroll file aren’t they? Not for much longer…

The default communication strategy for the majority of UK pension providers is email. For them it’s simply a matter of cost, the fewer paper communications they have to send out, the less money they have to spend on auto-enrolment. So their default is to send as much as they possibly can be email to your employees. If you want to send paper statutory notifications to your employees, you have to print & post them yourself (another job you didn’t want!). Don’t forget that these communications are a legal requirement so if you don’t send them out, then you’re liable to get fined.

So having employee emails on file, whether work or personal, will make your life so much easier.
 

Rob Barksfield

Auto-enrolment Consultant

Telephone: +44 (0)20 7893 3456

Email:  contactus@broadstoneltd.co.uk

Plan the dive, dive the plan.

This is a little bit leftfield for an article about pensions & auto-enrolment, but I want to talk about scuba diving today.

I’ve had an odd career path, but I started out years ago as a maritime archaeologist and consequently spent a lot of time diving in the UK and the Baltic. Before you ever get near the water for a project, you plan as thoroughly as possible, because once you’re underwater you only have a limited period of time in which to get a lot done. Plus, if you get it wrong there’s a good chance of damaging yourself.

Obviously there are some parallels to auto-enrolment planning. Most employers don’t leave themselves enough time. We recommend six months planning in the lead up to implementing auto-enrolment. We’ve just completed a project for a 700 employee company that staged on 1 November. They were a straightforward client, but the auto-enrolment planning that we did in the first three weeks was crucial. It seemed time consuming and it’s not as exciting as the actions of getting everything done, but it is hugely important to understand how much auto-enrolment will impact on your day to day processes.

There will be a huge amount of work to be done to get ready for auto-enrolment, but take the time to plan what needs to be done and do it properly. Incidentally, the client has said that this was the “smoothest project we’ve ever put in” – it’s all in the planning.

Rob Barksfield

Auto-enrolment Consultant

Telephone: +44 (0)20 7893 3456

Email:  contactus@broadstoneltd.co.uk

Auto-enrolment Isn’t Just For Christmas.

A short one to tide you over until New Year.

Do you know your Staging Date? Great, now you can (almost) forget it again!

In my opinion, Staging dates should be renamed as ‘Starting Dates’.  

So many of the employers that we meet seem to think once they reach their Staging Date and go through the initial auto-enrolment, then that’s the end of it!

If this was the case then things would be simple but unfortunately this is not the case as it kicks off a whole new way of thinking when looking at your internal procedures.

Auto-enrolment and in particular your Staging Date signifies the beginning of changes to each and every one of your company’s future payroll processes and MUST become part of the everyday business as usual process for payroll, HR & finance.  

You  therefore need to appreciate this and in turn have a full understanding of the long term impact of what will be required going forward ensuring you have put in place robust processes to help you manage the correct outcomes to meet the legislative requirements.

Rob Barksfield

Auto-enrolment Consultant

Telephone: +44 (0)20 7893 3456

Email:  contactus@broadstoneltd.co.uk

Data, data, data.

That’s a mantra we seem to live by in our office at the moment. 

You probably have something similar in your firm! But for auto-enrolment, data is king. The assessment & auto-enrolment of your workers all has to be done as part of the payroll process 

– as if you weren’t already pushed for time. So your auto-enrolment assessment needs to be slick and easily manageable.

The one way you can make this easier for yourself is to improve the quality of the employee data you hold on file. 

Post the Real Time Initiative (RTI) this should be the norm, but as we find out pretty much every day at the moment it isn’t. There are still bits of information missing here and there, which slow down the process.

Rob Barksfield

Auto-enrolment Consultant

Telephone: +44 (0)20 7893 3456

Email:  contactus@broadstoneltd.co.uk

So Here It Comes

I don’t know how large your company is, but for the majority of medium sized employers in the UK, auto-enrolment crunch time is 2014. By the time you read this, approximately 18000 employers have been through this process. 

Now this sounds a lot, but it’s the equivalent of the employers staging in six weeks of 2014.

Pension providers are about to get busy and you should start hearing more about the “capacity crunch”. 

We will start seeing something that no one outside the pensions industry expected – providers turning business away in droves.

For pension providers it’s simply a case of profitable business, with some small employers paying minimal contributions, it’s just not in their interests to open a new pension scheme, their break even time on that business might stretch up to ten years.

So who will take the business and who will still be standing at the end of 2014?

Rob Barksfield

Auto-enrolment Consultant

Telephone: +44 (0)20 7893 3456

Email:  contactus@broadstoneltd.co.uk

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

Predicting Interest Rates Becomes Interesting

Last week saw the release of the UK’s unemployment figures that saw a fall in the rate of unemployment to 7.6%, a rate faster than was expected. 

Whilst this is to be welcomed there will be a concern that Mark Carney, governor of the Bank of England, recently announced that interest rates will now be linked to unemployment figures and that consideration of a rise in interest rates would not be given until the jobless rate has fallen to 7% or below.  

Today's figures could mean that interest rates will rise faster than expected.

This could be great news for savers who currently struggle to achieve 1.5% before tax on their deposit funds, even if they tie their money up for a year.  If interest rates were to rise, long term savers might want to reconsider the decision for longer-term accounts, since they would not be able to take advantage of any future rises in interest rates until after the expiry of the (new) fixed term.

It is worth noting that the current deposit rates are still less than the recently reduced rate of inflation, which means that the future spending power of money will go effectively backwards.

On the other hand, mortgage borrowers are generally charged a rate much higher than the Bank of England base rate. So, those considering fixed-rate mortgages may well be advised to consider fixing now before any increase in rates.

Any pension savers considering buying annuities may be affected by a rise in interest rates, as annuity rates normally rise when interest rates rise. Whether annuities will continue to rise in the same way we have seen this year is subject to some conjecture. Annuity rates are linked to gilt yields and some commentators are suggesting that the Bank of England would consider exerting pressure to control gilt yields, possibly even by restarting their Quantitative Easing programme. 

Annuity rates are still much lower than they have been historically, which is forcing pension savers to consider other methods of arranging their post-retirement income – for example, income drawdown. And with Financial Planning Week starting on 24 November so there’s never been a better time to think about your finances.

Zane Hunter

Chartered Financial Planner

Private Client Partner

Telephone: +44 (0)20 7893 3456

Email:  contactus@broadstoneltd.co.uk

More Efficient Local Government Pensions

A couple of weeks ago I noticed that the Government has begun the process of seeking advice on how to manage £150 billion of Local Government Pension Scheme assets in a more efficient manner.

Currently these assets are spread out over 89 separate schemes, each managed independently by a separate investment committee, with separate fund managers and advisers. Clearly the Government is actively looking at some degree of consolidation, to try and make the overall management of this sizeable portfolio more streamlined -  but could it be that the Government is thinking about more extreme changes?

The local government scheme is unique, as it is the only major funded public sector scheme in the UK.

All other public sector schemes are unfunded. If the local government scheme starts being run in a more unified fashion, instead of 89 independent fiefdoms, then it is not difficult to see that the temptation to turn the scheme into an unfunded, Government-backed arrangement may become irresistible.

There is, of course, a clear precedent for this. When the Government took on responsibility for the Royal Mail pension scheme, it pocketed assets to the tune of £30 billion. The prospect of a further £150 billion dropping its way in treasury coffers may make even George Osborne drool.

John Broome Saunders
Actuarial Director

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