Newsletter – February 2014


Pensions news bulletin February 2014

1 Pension Charge Cap delayed – or is it?

Steve Webb the pensions minister confirmed at the CBI pensions conference that he would delay introducing measures to tackle high charges in workplace pension schemes, by a year to 2015. The minister said: “Nothing has changed our view that action is needed to ensure people are not ripped off by excessive pension charges”. However on 24 Feb in a written ministerial statement Steve Webb said the government will be introducing new measures into the Pensions Bill to ensure transparency in transaction charges and value for money from pension savings.


This U turn was bought about by a rebellion led by former Chancellor Lord Lawson who threatened his own amendment. The original cap on pension charges was only expected to be on new auto enrolment default funds in which there is comparatively little money. It would have ignored the existing high and hidden charge issues that affect many thousands of company pensions. The intention now is that the huge legacy problem should be addressed. See the “expert article” on this issue Pension charge cap delayed and what you should know about charges .

2 Pensions System is not working

The Financial Conduct Authority (FCA) has announced on 14 February that people at retirement are being let down by a poorly working annuity market. They can get a much better annuity by shopping around and those without a sum at retirement of at least £5,000 are largely ignored or get the worst prices. The FCA will be conducting a further review about what can be done to improve things.


This has been the situation for decades. Those who understand this can improve their income in retirement significantly. It has also been the law for many years that at retirement employees in defined contribution schemes must be told about their option to shop around. The fact that this isn’t working says a lot about the standard of governance in pension schemes, the style of communication used and the lack of care given to employees as they make their decision. It is very easy to make a big improvement in this situation if you just know how to manage it for your company.

3 Guaranteed Low Risk Retirement fund collapses

Outsourcing and support services company, Capita Plc is facing a demand for a £110 million from investors in the collapsed Connaught Income Series 1 fund it had operated. Amongst the shenanigans concerning the collapse of the apparently secure fund, one of Connaught’s founding directors reported irregularities to the financial services authority (FSA) as did a subsequent chief executive but the financial authorities took little interest, no action and didn’t inform investors who as time went on lost all their money. I hear the BBC are doing a TV programme on this debacle in March. It will be interesting to watch.


The lesson here is 1) to be very cautious about the type of fund you allow into a pension scheme and 2) to put the appropriate governance in place so that your pension scheme members can’t too easily transfer their pension from their employers’ scheme to an arrangement with a big promise and other risk indicators which need to be understood. Too many pension scheme managers or trustees think they can’t stop this but they can.

4 Better pensions from less tax relief!

The Centre for Policy Studies has written a paper ‘Costly and Ineffective, Why Pension Tax Reliefs Should be Reformed’. It makes the case for the abolition of tax relief on pension contributions, the retirement lump sum, employers NI contributions and income from investment funds. (The cost in 2010/11 was £50bn) However it sets out other incentives that it thinks will be better for promoting savings and financial responsibility while being less expensive to the treasury and tax payer. Measures are based on:

  • combining short term and long term investments (ISAs and pensions) within a single, relatively high, allowance limit,
  • a top up to the pension account before retirement instead of the lump sum being tax free,
  • higher incentives for basic rate tax payers, lower incentives for the wealthy eg 30% for all,
  • increased tax relief for children’s pensions and
  • safe harbour guidelines to protect employers from benefits related class actions where they acted in good faith.
  • The investor could also borrow against their pot and make early withdrawals – with a top up where you didn’t.


This paper contains well-considered and imaginative proposals. Currently tax relief is a major reason why contributing to a pension is a good idea and it pays you for not having access to your money until retirement. These new proposals don’t abolish incentives but modernise them. We have had the current system for decades and it could be improved. This paper sets out how.

5 Auto enrolment – progress reports from DWP and NEST

Automatic enrolment began in October 2012, starting with the biggest employers. The DWP and NEST describing the first years’ experience noted:

  • More than 1.9 million workers had been automatically enrolled across nearly 3,000 employers and the average opt-out rate was around of 9%.
  • NEST (The National Employers Pension Trust) reported that 63% of employers had “encountered unexpected challenges”, while 55% “found it difficult to understand the legalities” of auto-enrolment. They said a fifth of employers took 16 months to prepare for AE, echoing warnings from The Pensions Regulator (TPR) to prepare early.
  • NEST, who have a public service obligation to enrol any employer that asks, said membership stands at over 600,000 individuals with around 1,800 employers. They also said employers may not be engaging enough with the detail of the reforms to successfully manage their duties.


Opt out rates were bound to be low (especially in the biggest companies) as the regulations give a very short window to opt out and the statutory communication is designed to reduce opt outs. A more crucial indicator is the percentage of people who stop contributing after just a few payments. This is not recorded. For most companies’ all the focus is on getting a pension scheme in place by staging date and putting the workforce into it so they don’t break the law. However NEST are right to point out that the “employer duties” are a constant and continuous requirement which need dedicated oversight. CORPIAS has been close to auto enrolment since 2010 and part of the service we offer covers auto enrolment governance. Unfortunately people who pay into a pension scheme often think that they are ‘alright’ and ‘job done’ However with the very low contributions required of auto enrolment (plus the charges issue detailed in the link at news item 1) most people will not build up enough money for a decent pension. Steps can be taken to improve people’s understanding so they can make better decisions and have achievable expectations. It is perfectly possible to have a workforce become engaged with their pension benefits although most companies’ do not know how to do this effectively. CORPIAS can do this. Thank you for reading. In January and February employers with between 250 and 500 workers have reached their staging date. These account for an estimated 5,000+ companies employing 1.5m to 2m workers and the numbers grow dramatically from here. Do you think the relevant agencies from providers to advisers will cope? There will probably be a capacity crunch and employers should prepare for this. If you would like to discuss any of these issues or to find out how we can help your company please contact Alan Salamon on 07975 979233 or at