Newsletter – May 2014


Pensions News Bulletin May 2014

Employers lose up to 4% of payroll to financial stress

A YouGov survey of 2,100 employees conducted for Barclays Corporate & Employer Solutions and Barclays Workplace Banking found that lost productivity caused by employees worrying about their financial situation could cost organisations as much as 4% of their payroll. It showed 20% of workers thought financial worries reduced their effectiveness. The intriguing disconnect is that 69% of employers believed that staff felt their company was concerned about their financial wellbeing when in reality only 10% of employees actually believed this. The main indicator of financial wellbeing was how long an employee’s savings would last in the event of ceasing work. This was more important than individual or household income. Other results showed:

  • 59% of employees were focused on managing their current financial situation rather than saving for the future.
  • 11% fell into the ‘slipping’ category – with no savings and regularly spending more than they earned.
  • 46% were worried about their finances, while
  • 18% said they often lose sleep worrying about their finances.
  • Just 35% felt optimistic about their financial future.

The report argued that a significant number of employees would benefit from greater employer support to manage their day-to-day finances as well as education about the benefits of a savings buffer.

Barclays Corporate & Employer Solutions head of workplace savings Katharine Photiou said: “Our research has shown that people cannot function properly if they are loaded up with too many demands on their attention. When financial problems affect how employees think and operate, this can lead to a significant impact on their concentration and productivity in the workplace”.


With the lengthy period of recession and job insecurity hopefully nearing an end, staff should soon begin to feel improvements in their immediate financial security. They will then start thinking about the future positively. There is a lot companies can do to reduce the time staff spend worrying and instead motivate them to benefit themselves and their employers by focusing on their productivity.

One of the ways to improve this is to identify the different ways employees relate to various methods of help, and deliver accordingly. At CORPIAS we find that most workers prefer short bursts of easy communication that forms part of a regular series of guidance. It is designed with the expectation that not everyone will be engaged with each item as over time the variety of style and the consistency of the message will make a positive difference to everyone. It helps enormously if the local manager(s) are briefed and mentored so they are clued up and supportive for each episode in the series. Lastly, the regular (not necessarily frequent) appearance of a senior manager who shares the mission, can sum up the issues and communicate the vision will uplift the workforce and motivate them to give their best.


Better Workplace Pensions – but not now

In May the National Association of Pension Funds (NAPF) issued its response to the government consultation ”Better Workplace Pensions: further measures for savers”.

While it doesn’t disagree with the many areas of proposed change, the NAPF says such speed as proposed could be detrimental to employees. See the NAPF’s response here: Better Workplace Pensions: A response by the National Association of Pension Funds.

The NAPF highlights that following the Budget every scheme will have to:

  1. review its investment strategy to ensure it can adapt to the decision choices employees will have at retirement with annuity, drawdown or full commutation;
  2. adjust all its employee communications to reflect the Budget’s changes (see April newsletter), and;
  3. manage the requirement for guidance at retirement to be in place by April 2015 even though the detail is not finalised.

It calls on the Government to reconsider the timescale for implementation in light of all these changes. Joanne Segars NAPF chief executive says the NAPF “strongly supports the Government’s ambition to improve minimum quality standards in workplace pension schemes, but it is difficult to recall a time when UK workplace pensions have had more to deal with. The Budget set out some of the most far-reaching reforms to pensions in over ninety years and while much of the detail of these reforms is yet to be confirmed, we do know they must all be implemented by April 2015. In this context asking schemes to implement the 0.75% charge cap at the same time risks forcing schemes to do too much too quickly. Even with the best intentions, this can only jeopardise good outcomes for scheme members and schemes should be given time to put the changes from the Budget in place first. We recommend the Government reviews the timetable it has laid out to ensure it allows room for schemes to get this right, not just get this done”.

Key recommendations within the NAPF’s consultation response include:

  • Schemes should be given 12 months from April 2015 to explain to TPR or the FCA how they are planning to comply with the charge cap.
  • The charge cap should provide sufficient flexibility to take account of new requirements that may fall on schemes as a result of the IORP directive. (an EU set of requirements).
  • The Government should review its position on what can be covered by the charge cap in light of the Guidance Guarantee requirement.
  • The DWP should use Pension Charges Made Clear: Joint Industry Code of Conduct as the basis for any new rules on the consistent disclosure of charges and services by pension schemes.


The cap on charges is a big issue and difficult to get right. At CORPIAS we think that if it isn’t going to cover transaction charges, which seems to be the case, there remains a loophole that could be exploited to re-categorise how charges are incurred.

If employers understood the charging structure on their pension schemes, many would have them reviewed and would be likely to get a reduction. Most employers are only aware of the AMC (annual management charge) and do not monitor what services they get for the charges paid. According to the Pension Institute at Cass Business School someone who saves all their working life loses about a quarter of their pension savings with a 1% charge. So it’s a very significant issue for the workforce and many schemes haven’t negotiated a charge reduction for years even when their assets, on which they are levied, have grown significantly.

For details about pension scheme charges see Expert Article “Pension charge cap delayed” and the sections “Compounding of charges” and “It’s not the AMC”.

With a general election next year it seems unlikely that all the pension changes in the planning will get the attention of government and DWP that they need, so you have to wonder if they will be introduced at all or if so at what quality.

For employers and benefit providers all changes to pension and benefits rules are expensive. They give rise to significant projects and need post-implementation care to ensure they work properly and that they are understood by the workforce. Most employers are either still trying to bed down auto enrolment or are yet to tackle it.


Police investigating collapse of guaranteed low risk income fund

We reported this issue, the collapse of the Connaught asset management fund, in the February newsletter – ‘Guaranteed Low Risk Retirement fund collapses’. The latest is that there was a debate on the issue in the House of Commons on the 7 May. This can be read in Hansard.


The upshot is that the issue is serious and legal action is likely to follow. The accusation is that Capita misrepresented and mismanaged the fund while they were the authorised corporate director, and that the financial services authority (FSA, now the FCA, financial conduct authority) did not act properly when they were informed and knew of serious problems with the management of the fund. All parties deny they acted improperly. Investors, much of it pension scheme money, lost £110m. Yes, it was called a guaranteed low risk fund. Andrea Leadsom (economic secretary to the Treasury), confirmed the police were investigating.


127,000 people find missing pensions

In the year to April 2014, the DWP revealed that 144,169 individuals used the government’s pension tracing service with 126,904 successfully finding the location of their previous pension scheme whose details they had lost. However with auto enrolment requiring all employers to provide a pension scheme and with the average person apparently having 11 jobs in their lifetime this could lead to 50 million dormant and lost pension pots by 2050.

To counter this risk the government has set down provision in the Pensions Act 2014 to allow the introduction of the ‘pot follows member’ system. This means that where someone moves jobs their pension account valued below £10,000 will automatically move with them.

Steve Webb, the pensions minister, said “Soon it will be the norm that when you move job your small pension pot moves with you. This will reduce the costs of providing pensions and help people to plan for their future”.


Pension scheme transfers have always been slow and expensive to operate. The difference between schemes can be large. In a defined benefit scheme you would not expect to get the same projected pension value in the new scheme as the old scheme. In a new defined contribution scheme the available funds and fund charges may not be the same as in the scheme you are leaving. Then there are service standards and security to consider. It seems quite likely that you could be transferred from a better scheme to a more risky or more expensive scheme. Who is to judge and will transfer really be automatic or compulsory as suggested? This is another pension reform that comes from a good idea but which is fraught with important concerns that have not been worked through.

The Pension Tracing Service helps individuals to find occupational and personal pensions they have lost track of. It uses a database containing information on more than 200,000 pension schemes. The free service provides contact details of the potential scheme administrator to enable customers to make subsequent enquiries. The Pension Tracing Service can be contacted here: or on 0845 600 2537.

Thank you for reading.