The Office for National Statistics (ONS) released its annual survey of occupational pension schemes in June 2019 and this identified some interesting trends in relation to Workplace Pensions. One of the key statistics that instantly jumped out at me, was a surge in the number of dormant pensions in recent years.

Since auto enrolment was introduced, the number of active members (i.e. those contributing to a private sector pension) has more than doubled from 7.8 million in 2012 to 17.3 million in 2018. This is good news and an indication of how successful the government’s pension reforms have been; however, it also poses a problem in that it has created an increase in small dormant pension pots as people move jobs, which happens far more often than previous generations, and with each new job comes a new pension. But what are people doing with their previous pension funds? For many, it appears the answer is nothing!

To be more specific, the ONS Survey showed there were 18 million dormant pensions in 2018, up from 15.8 million in 2017 – these being ‘old’ workplace pensions to which contributions have ceased. The increasing number of small pension pots is making it harder for millions of savers to manage their money and understand what they will receive when they get to retirement; meaning a vast number of people may be set for disappointment when they do.

It’s concerning that, according to estimates by the Department for Work and Pensions, up to 50 million pension pots will be lost by 2050 without a vehicle to help workers keep track of savings through their careers. Although insurance providers make considerable efforts and spend millions every year trying to reunite people with lost or forgotten pensions, providers are unable to keep pace with a mobile workforce that moves jobs and homes more often than ever before.

This illustrates a need for the Pension’s Dashboard more than ever (something highlighted by my colleague Richard Grover in his opinion piece in April 2019) enabling people to see all their pension savings, including the State Pension, together in a single online area. Until that time, it makes sense for savers to be more proactive when it comes to their pensions. Some clear guidance to an employee from a qualified professional may mean the difference between that person understanding the value of their ‘old’ pension in the context of their overall pension picture and possibly transferring this into their new plan, or them potentially losing track of it completely.

At Wingate we have designed a pension engagement service for employers to try and de-jargonise pensions for employees, with a view to getting staff engaged with pensions and planning their futures. If you are looking to understand how pension education can help increase employee appreciation of your pension arrangement, then please feel free to contact us at:

@: info@wingatebs.com  or   t: 01883 332260

It’s not unreasonable to say that Automatic Enrolment has been a success with findings from the 2018 Department of Work and Pensions (DWP) evaluation report on the topic showing:

  • As at June 2018, rates of opt-out / stopping contributions into a pension after the opt-out period have remained consistent with levels before the contribution increase in April 2018. Official data from the DWP state the opt-out rate is currently at 9%. Data for 2019 is still awaited.
  • Since the start of automatic enrolment in 2012, more than 9.9 million workers have been automatically enrolled, and over 1.4 million employers have met their duties, with 591,000 workers having been automatically re-enrolled and 73,643 employers having met their re-enrolment duties.
  • Findings from the DWP’s communications tracking research found that the majority of individuals interviewed viewed automatic enrolment as a good thing for them personally (82%); agreed saving into a workplace pension was normal for them (80%); and knew where to go if they wanted to find more about workplace pensions (83%).

We all know however that the current total contribution level of 8% (employee 5%, employer 3%) is clearly not going to be enough to provide a suitable and sufficient income in retirement for most people who may well have unrealistic expectations as to what their retirement income may look like.

Opinion circulating from leading pension industry heads have suggested that by 2030, the total minimum contribution rates could rise to 12% with a 50/50 split between employer and employee. As most employees are currently paying 5%, a jump to 6% (50% of 12%) is not too hard to find however a 3% jump for employers may mean that future pay increases are restricted.

Whilst these views are positive and the hope from the industry that the above opinion may be included in a potential pension bill later this year, the key to success around understanding pensions for the average person in the street is not to keep throwing money at the subject but through communication. Although providers are making massive strides in making pensions more engaging through development of online functionality, mobile phone apps and more legible annual statements, there is still much work to be done.

Many employers contract expensive specialist services with the hope that they deal with all aspects of their pension obligations. However, we believe at Wingate that the fundamental key to dealing with pensions for the benefit of employees is to deliver communications which take the complexity out of the subject, make it engaging and then once a base level of understanding and knowledge is in place, build up the expertise.

At Wingate Benefit Solutions we have tools to help employers engage with employees, all of which are tailored to an employer and employees needs. This could include face to face group presentations to staff, one to one ‘pension clinics’, online presentations together with clear and concise engaging guides in either hard or soft format. Should you wish to discuss these options, please do not hesitate to contact us on 01883 332260 or at info@wingatebs.com .

It feels like Brexit has been going on far longer than the two and a half years since the original vote, but is something that we, as pension advisers, are talking about more than ever. Why? Because when we meet with individuals, many of them – both UK and EU Nationals – ask us the same question: How will Brexit affect my Pension?

There’s no doubt that Brexit has affected the pension market, but pensions have changed in other ways in recent years and whilst it’s important for pension savers to ensure they retire in the strongest position possible, there will always be areas beyond all of our control. In my opinion, the biggest impact of Brexit on Workplace Pensions is unlikely to be any changes to the rules currently in place, but more on the investment return of pension funds. This is linked to the performance of the UK and EU economies – as well as the economic performance of the rest of the world – and investment return impacts on the value of your Workplace Pension. Pension funds performance is directly linked to the UK economy, as a large proportion are invested here through UK equity holdings or UK bonds.

As reported by Moneyfacts*, pension funds had a strong year in 2016 and the year-on-year performance was the highest since 2009. Brexit was at the heart of that, with stock markets benefitting from the falling value of sterling, which subsequently encouraged foreign investment to the UK.  This drove the FTSE 100 to hit new record highs, which was good news for pension savers, as this improved performance resulted in higher pension pots for retirement.

However, growth slowed in 2017 and then in 2018, we saw the first year-on-year loss for many pension funds since 2011. It might be unfair to place the blame for this solely on the shoulders of Brexit, but the existing uncertainly and potential risk of a ‘No Deal’ has certainly influenced market behaviours. When Brexit finally comes around, whatever impact it has on the economy – positive or negative – will have a significant influence on Workplace Pensions.  We should also bear in mind that the nowadays-rare Defined Benefit pensions, offering a guaranteed income to pensioners on retirement, are still paid from funds invested in the markets meaning a severe negative downturn could finish these off for good.

The possible impact of Brexit on UK state pensions, where the big determinant is the size of the current tax base used to pay state pensions currently in payment, is a little more straightforward. Whilst these are dependent on the economic state of the UK, tax and national insurance funding this, the population’s size and age are both key – which is related to future levels of immigration to the UK. This was considered to be the single biggest driving force behind the vote to leave the EU, but post Brexit migration legislation is very important as we NEED increased workers in the UK to fund state pensions for our aging population.

Therefore, although we can look at the potential impacts on pensions, it’s possible that the two biggest Brexit unknowns – the impact on the economy and immigration – are the most important factors. In terms of what will have the biggest impact on how much people have as a pension, these are both likely to dominate any implications that arise as a result of future changes made to pension rules.

We will continue to monitor the investment performance of Workplace Pension funds very closely so if you would like any further information, please get in touch.

*https://moneyfacts.co.uk/news/pensions/2016-saw-highest-pension-fund-returns-since-2009/

Keep It Simple Stupid

Let’s be honest, pensions are not the most exciting subject in the world but we probably all acknowledge that they are very important. I have been to many a party, night out etc and have been chatting to people about everything and nothing when the old, ‘What do you do for a living?’ question comes up. In my mind, I want to say ‘dolphin trainer’ or ‘lion tamer’, but the words ‘I’m a Pension Adviser’ just comes blurting out and funnily enough I am left standing on my own…

The lack of excitement around pensions is not helped by the way that pension providers give information to consumers. Often we receive our annual pension statement through the post in the form of a big pack and if we are lucky, we’ll read the first page, maybe the second and simply file it in our dusty old pension file where the last 10 years annual statements are all stored. We all have the best intentions of reviewing our pension/s one day but that day tends to happen when it’s a little too late and retirement is looming leaving us with little time to take any remedial action on the value of our pension.

A recent government Automatic Enrolment review has found that less than 14% of people read and understand their annual statements and this represents a “missed opportunity” for the industry to engage and educate savers. As a result, the Pensions Minister has suggested a new simplified two-page annual pension’s statement in a bid to provide a best practice template for the industry. The proposed simpler annual statement consists of just two sides of A4 paper and includes the information that matters most to people saving for retirement. It clearly signposts to other detailed information that can sit separately on an insurance company website. This reflects legal requirements and can be amended by providers using their own branding. The simpler annual pension statement is available to view at the following link https://www.plsa.co.uk/Policy-and-Research/Document-library/Simpler-annual-pension-statement

Whilst this is a good step forward, there is still a long was to go to raise the profile of pensions. It seems as though the balance of responsibility is moving away from the government and some of this responsibility sits with the employer to help with pension education.

Even if staff are not actively engaged with pensions, spending 30 minutes a year to understanding whether your investment is right for you, understanding what you are on track to receive from your pension and the state pension and how to make up any shortfall, is not an overly onerous commitment but it’s hugely important and beneficial.

Wingate Benefit Solutions has designed a pension employee engagement service for employers to try and de-jargonise pensions for employees (just like the proposed new statements) with a view to getting staff engaged with pensions and planning their futures. If you a looking to understand how pension education can help increase employee appreciation of the provided pension arrangement leading to greater staff retention and engagement, please do not hesitate to contact us.

In a recent update published by The Pensions Regulator (TPR), they confirm that between April and June 2018 27,219 compliance notices were issued against employers for breaching automatic enrolment rules. Let that sink in for a moment…27,219 compliance notices in a 3-month period!

A compliance notice is issued by TPR to set out the steps an employer must take (or refrain from taking) in order to remedy a breach in automatic enrolment processes, but also to prevent the breach from being repeated. A compliance notice is normally issued following an inspection where the TPR visit an employer’s premises to in effect audit their automatic enrolment processes. If following an inspection a compliance notice is not adhered to then TPR do have the ability to issue monetary penalties to employers too.

This all sounds pretty serious and when you dig deeper into the financial penalties and possible reputational damage that non-compliance around automatic enrolment can cause to an employer, then it is it very, very serious indeed.

Typically, during an inspection, TPR ask to see evidence of four things:

*They will need to see a breakdown of your workers and the categories they fall into for Automatic Enrolment. In effect, TPR want to see your payroll software.

*They may need to take away copies of payroll printouts/records. This could be your payroll going all the way back to your staging date. They will need to see names, dates of birth, national insurance numbers, gross earnings and pensions deduction from pay in relation to your workers.

*They will need to see details of the Pension scheme(s) that you are using for Automatic Enrolment purposes including the scheme name and any specific reference numbers that the provider has given to you.

*They may need to determine what letters/e-mails were sent to your workers about Automatic Enrolment and how many of your workers OPTED IN or OPTED out.

 

An audit tends to take a couple of hours to complete and TPR have the authority to talk to ANY person on the premises in conducting their inspection. Like any type of audit, a TPR inspection would generally be a bit of a nuisance as it would disrupt your working week. However, if you have everything in order and are happy to provide the information required then why be worried?

 

*As an employer, are you comfortable in being able to provide TPR the evidence listed above?

*As an employer, are you comfortable that you would pass a TPR audit is you received an inspection notice through the post today?

*As an employer, do you know where to go to get help and advice from qualified professionals to make sure that all your ducks are in a row, should the inspectors come calling?

 

If you would like a free independent initial assessment of your Automatic Enrolment compliance position, please contact us on 01883 332260.

“So, I have our company pension in place for the employees; contributions are being taken from pay and paid across to our pension provider on time and we have submitted our declaration of compliance to The Pensions Regulator (TPR). All seems to be swimming along lovely and I can now go back to focusing on my business and helping it to make profit.” As a key decision maker or owner of a business, these words may ring very true to you.

With your personal affairs, how often do you review your utility bills, satellite or cable TV contract or mobile phone contract? Personally, I probably look at mine every 2 or so years. I do it just to make sure that I am doing the right thing, that I’m not over paying and that the service I was promised two or so years ago is still the same today. If this is how we deal with our personal affairs, as a business owner, why don’t we do the same with such things as the company’s pension scheme or come to that matter any of the employee benefits? If its the general insurance, property rates or IT or phone systems, they’ll usually be reviewed annually so why not the same for the pension and other benefits?

Pension legislation as well as payroll software and pension systems are all very different now to how they were back in 2012 when Automatic Enrolment Preview (opens in a new window)started and is even more different in the last two years. However, has your company pension been amended/reviewed to keep up to date with these changes in legislation?

Questions such as the following should all be asked

  • How is the default investment fund performing, and what are you measuring it against?
  • Is the Annual Management Charge competitive?
  • Does my employees’ pension target drawdown or annuity?
  • Does my payroll provider have a direct link with my pension provider to simplify payroll processes?
  • Do my employees value the pension?
  • Can I help them with pension education?

Many people will comment that ‘if it ain’t broke’ don’t fix it’, however, if the pension doesn’t perform as it should and/or employees aren’t receiving value for money who do you think your employees would go to for answers?’

The scrutiny from TPR over the coming years on Workplace Pension is only going to intensify over the next few years and therefore it is important that a business has steps in place to defend itself and justify the decisions made to TPR if asked.  A review of your Workplace Pension will either confirm that what you’ve done is still good today or highlight areas of improvement.

Either way, this is a positive message that can be sent to staff to re-assure them that you have everything under control and that they can continue to drive the business forward on your behalf.

For further information on our scheme suitability review services please contact the team on 01883 332260.

 

Richard is one of our Strategic Benefit Consultants specialising in Workplace Pensions.

When the Workplace Pension Reforms were first introduced, minimum pension contributions were set that an employer had to pay to their Workplace Pension Scheme, increasing over time.  Whilst Auto Enrolment has been the norm for some time now, it’s amazing to think that we have only just reached the first increase in contributions, from 2% to 5% total, effective from April 2018.

Many firms are paying more (and in some cases, much more) than the legal requirements – but what is the benefit of doing this?

The minimum is just that……….it’s not enough!

There is a wide understanding that minimum contribution level of 8% from April 2019 will not provide someone with a sufficient pension in retirement to live on comfortably. Research by the Pensions Policy Institute (PPI) suggests that a total pension contribution of 12% is more realistic and even the Department of Work & Pensions (DWP) own review in 2017 stated: “We recognise contributions of 8% are unlikely to give all individuals the retirement to which they aspire”.

This suggests employees should be paying upwards of 10% of their salary into a pension, which gives employers an opportunity to demonstrate they are prepared to make a long-term investment in their employees by paying more to their pension. Offering higher pension contributions shows a commitment to help employees secure their financial status in the longer term….it’s in effect ‘deferred pay’.  Given the amount of publicity pensions have received in recent years and the fact everyone is aware every employer must pay a legislated minimum contribution paying more than the minimum has become a very distinguishable ‘added value’ benefit which can help attract and retain staff.

The cost to increase contributions for all employees may be too high

Of course, paying higher pension contributions for all employees will not viable for every employer but there are ways of restricting increases to certain categories of employees. For example it could be used to reward employees who achieve a certain position within the business, a level of qualification /compliance or a favourite of ours, loyalty.

Another option is to match higher employee contributions up to a certain point, so rather than providing an increase for everyone, an employer only pays more into the pension when employees do.  This sees employers providing additional value to employees who place importance on their pension themselves, therefore maximising the benefit of the additional spend.  Employers could match the increased levels to clear (non subjective we’d suggest) company values or targets as long as these of course do not discriminate.

Add ‘value’ without significant cost

Employee guidance, education and support can be provided without significant increases in cost. Pensions are rarely seen as being easy to navigate, so providing information they can understand will ensure workers feel included, engaged and ultimately value their pension contribution benefit. If they don’t understand it they are unlikely to value it and certainly not to the extent the employer would want bearing in mind the cost.  Employees highly value guidance which they can understand and act upon around their investment choice, retirement options, required levels of savings etc. At the same time they rarely have the time to source let alone educate themselves on a subject they see as complicated to start with. For this reason simple, short one to one human assistance can provide a huge benefit at a low time or financial cost.

 

Whichever way you look at it, pensions have been brought back to the forefront of many employees minds when it comes to considering benefit packages. This is only likely to intensify with the increases to auto enrolment pension contributions this and next year and the ever increasing realisation that the State Pension is unlikely to provide what people had hoped and certainly not when they’d originally expected it. As such anything an employer can do to increase the value of its pension benefit will be recognised and valued more so than it likely would have been in the recent past.

 

 

Jon is one of our benefit advisers and can be contacted at jon.bird@wingatebs.com or 01883 332269. Alternatively please contact any of our Employee Benefits Team at 01883 332260 or info@wingatebs.com

 

As part of new UK regulation, thousands of employers (employing over 250 employees) as of 4th April 2018 are now required to publish their gender pay gap figures for the first time and the information published so far, has shown that there is still a gender pay gap for women in companies.

This gender pay gap will impact on a woman’s ability to save for her retirement.  It’s simple maths!!  You earn less, but have the same expenses, so you have to prioritise your spending .  It can be very difficult to think of the future when you have to pay  for the here and now.

A recent survey by Scottish Widows* stated that the average pension saving pot for women was £64K compared to a mans of £125K.  This is partly due to taking career breaks to have families, adjusting working hours to care for families and the cost of childcare which when combined,  can affect women’s  ability to save for the future.  As life’s’ priorities change many women’s priorities change and pension savings take a backseat.

In addition to the imbalance, many women who work part time may not earn enough to qualify for pension automatic enrolment, meaning  that they may not be saving at all for a pension.

Relying on your husband’s pension?

Some women are relying on their spouses  pension in retirement.  Statistics show that 42% of marriages end in divorce in the UK and 71% of divorced couples did not discuss pension as part of their settlement . 40% of women have worse retirement prospects after divorce.  A general lack of pension knowledge could be one reason why women’s retirement savings worsen after divorcee.  It is important that all women understand the steps that need to be taken to secure their own independent future.

What about the State Pension?

Combine this with the fact that a BBC report* uncovered that men still receive an average of £28 more a week in state pension despite reforms starting to narrow the pension gap.

Solutions?

Many employees, not just women, do not appreciate the importance of saving for their future retirement.  Women typical are already disadvantaged in the work place, as shown in the Gender Pay Gap reports but this coupled with the lack of retirement planning education are a recipe for retirement disaster.

We have found that pension and general retirement education, in particular for women, is highly valued and appreciated. It helps them fully understand the importance of their pension and saving for their retirement in general. If they are aware of the gaps early enough and the cost of filling these they can look to do something about it rather than finding out too late.

Employers working with the right advisers can provide employee support via face-to-face meetings, group presentations, telephone helplines or online education. It can be very flexible, tailored to meet each employers environment and culture and doesn’t have to cost lots or take employees away from their work for long periods of time.

You’re paying into pensions for your employees but if they don’t understand the benefits of this to them personally, in realistic terms based on their own circumstances, do they appreciate and more importantly value this? In our experience some may a little, but nowhere near as much as when they do.

 

Helen is a Strategic Benefit Consultant specialising in strategies to maximise employee benefit value. Her contact details are: helen.pengelly@wingatebs.com 07825 990356 alternatively contact the Employee Benefit Team on 01883 332260.

 

Sources:

Scottish Widows Women and Retirement Report 2017  http://www.scottishwidows.co.uk/extranet/working/about/reports/womens-pension-report

BBC  ‘State pension gender gap ‘narrowing too slowly’’   http://www.bbc.co.uk/news/business-43835706

 

Everyone involved in the running and management of a pension scheme – employers, advisers, trustees and administrators – should understand the compliance and enforcement interventions being undertaken by The Pension Regulator (TPR), as this will help prevent any penalties being imposed. TPR’s approach is based on trying to stop problems developing in the first place by being clear about expectations, and there is a range of educational materials available from the Regulator explaining these.

 

Despite this and Auto Enrolment (AE) having been introduced over 5 years ago, thousands of employers are still not complying with their pension duties. On 13th February 2018, TPR announced that the number of employers that have met their duties passed 1 million, further confirming that AE has become the norm for UK businesses.  However, AE enforcement work is also on the rise and between October and December 2017, TPR successfully concluded nearly 32,000 civil enforcement cases – which represents a quarter of all investigations completed since AE started in 2012.

 

There are a variety of enforcement strategies, from Compliance Notices (issued when compliance is not declared on time), to spot checks and proactive drives (where an enforcement team carry out targeted investigations). The majority of employers who receive a Compliance Note go on to meet their duties, but any that don’t will receive a Fixed Penalty Notice; those who persist in not complying risk receive an Escalating Penalty Notice with statutory fines varying from £50 to £10,000 per day, dependent on the size of the employer.

 

TPR also works directly with pension providers to obtain details of schemes that have not received payment schedules or contributions. It will initially investigate what the issue is, but if an employer has made no effort to pay regular contributions, enforcement action will begin. This starts with an Unpaid Contributions Notice, which requires all backdated contributions to be paid within 28 days. With minimum pension contributions for employers and employees increasing from April 2018, employers who fail to pay in the correct amounts on time after this date won’t only receive a fine but will also have to pay back all missed contributions at the new, higher rate too!

 

December 2017 saw the first ever guilty plea in a criminal prosecution for a case of wilful non-compliance; an offence punishable with an unlimited fine in a magistrates’ court, and up to two years’ imprisonment in the Crown Court.

 

Between October and December 2017, TPR:

  • Successfully concluded 32,000 civil enforcement cases
  • Issued Compliance Notices to nearly 18,000 employers
  • Issued Fixed Penalty Notices to around 7,500 employers
  • Issued Escalating Penalty Notices to over 1,400 employers
  • Issued Unpaid Contribution Notices to over 1,300 employers

 

The message is that it is not enough for employers to simply enroll staff into a pension scheme. The correct information must be sent to the scheme provider, contributions must be paid on time for every pay period and new starters must be assessed as they join.

 

Some employers still fail to realise that AE is not an option, it is the law; those that refuse to comply could end up with a criminal record and will still have to provide their staff with the pension contributions they are due. TPR have proved that employers who fail to comply WILL be caught and WILL be penalised. This reinforces the need for pension governance for all employers, regardless of their size, to ensure continued compliance and positive responsible scheme management .

For more information on Auto Enrolment and the ongoing compliance and governance please contact us at info@wingatebs.com or 01883 332260

In December 2017, the DWP published their latest review document “Automatic Enrolment Review 2017:  Maintaining the Momentum”. This considers the success of Auto-Enrolment (AE) to date, and what changes may be required to build on that success in future years.

Government’s objectives are that it wants to continue to normalise pension saving among workers; help lower earners build resilience for retirement; support individuals (predominantly women) in multiple part-time jobs; and simplify automatic enrolment for employers.

Below is a summary of the recommendations made in the report which have these objectives at the fore:

  • Automatic enrolment duties will continue to apply to all employers
  • The intention is to lower the age criteria from 22 to 18 allowing younger people to benefit from automatic enrolment. This would bring 900,000 young people into automatic enrolment, whilst simplifying the workforce assessment for employers
  • AE contributions to be calculated from the first pound earned, rather than from a lower earnings limit (£5,876 in 2017/18) and ‘entitled workers’ category to be removed. This would bring an extra £2.6 billion into pension saving and encourage individuals in multiple jobs to opt-in to pension saving. This would also help to simplify the way workforce assessment and contribution calculations.
  • The earnings trigger for automatic enrolment to remain at £10,000 in 2018/19 but will be subject to annual review
  • The Government will implement its manifesto commitment to target interventions, including Making Tax Digital, to identify the most effective options to increase pension saving among the self-employed. Currently a proportion of the 4.8 million self-employed people are at risk of under-saving for their retirement.
  • The impact of increasing contributions will continue to be monitored and evaluated to achieve the right balance between statutory contribution rates and voluntary additional retirement savings. Recognising such changes present significant additional costs for employers and the Exchequer and significant changes for individuals, there will be consultations to explore cost mitigation and funding options.
  • Effective engagement can reinforce an individual’s saving behaviour, supporting normalisation, especially where a choice exists to opt out, stop saving or save more. The report sets out specific areas where there is scope for pension providers, advisors, employers and government to build on existing and develop new initiatives that will support individuals’ engagement with and ownership of their savings to ultimately deliver better value to them

Overall Government believes Automatic enrolment has been a success with the savings behaviour of millions having changed and workplace pension saving has become normal. They feel the review’s recommendations will build on this success and create a fairer, more robust and sustainable system for the future which balances the needs of individuals, employers and taxpayers.

Wingate’s Comment: The review’s proposals are likely to be progressed once the impact of the AE minimum contribution increases (effective from April 2018 and April 2019) is known so these can be taken as ‘work in progress’ and subject to change.  Nonetheless, they give a good indication of Government’s intention and it’s clear there is plenty more change on the horizon for employers, employees, and even the self-employed in relation to Auto Enrolment. We will continue to issue updates as matters evolve and you can of course contact our advisers on 01883 223360 or at info@wingatebs.com for updates or assistance.