Pensions News Bulletin October 2015
1. Phew! A rest from CDC (continuous difficult change).
At the National Association of Pension Funds conference in mid-October Ros Altmann, the new pensions minister, announced the government’s decision to halt any further work on collective defined contribution schemes, or CDC in the language of acronym. The rules that allow CDC schemes to be created were laid down in the Pension Scheme Act 2015.
CDC pensions are a style of defined contribution pension used in Holland and Scandinavia where employees and employers contributions are pooled across employers or industries with the purpose of providing a target level of pension which may rise, or occasionally fall, depending on its financial returns. The point is that individuals are not taking all the investment risk themselves as everyone’s risk is pooled together.
One of CDC’s disadvantages is that it needs to be large scale to work so there is difficulty in starting from scratch – as we would be in the UK, and another is that employers don’t have the appetite for taking more responsibility for pension provision than they currently have. With CDC they would have to if the defined ambition of the target pension was to have sufficient strength and ensure superiority over individual DC.
With defined benefit legacy issues, auto enrolment regulation and the new pension freedoms all being work in progress, employers’ have enough complex and demanding pension responsibilities still to work through. Not to forget that they have a business to run and other regulatory and administrative responsibilities to expense.
So it was with relief that many employers and pension providers heard Baroness Altmann’s speech.
The minister will understand how employers and pension operators may be feeling as she had inherited a large number of departmental initiatives herself. She said that CDC wasn’t abandoned but on hold for the moment because of all the other changes going on. Her top priority being the communication of the state pension reform, which will transition the current multi-tier system to a flat-rate system in 2016.
2. NAPF renamed PLSA
The National Association of Pension Funds has changed its name to the Pensions and Lifetime Savings Association. Once the trade association for the large defined benefit pension schemes the rebranded association will now be open to a broader membership and will consider all the methods for building retirement income not just pensions. Its purpose is to ‘help everyone achieve a better income in retirement, to get more money into retirement savings and more value out, and to build the confidence and understanding of savers’.
It was probably a necessary change as the NAPF’s original purpose had become less and less relevant as the worlds of workplace pensions and private (retail) investing changed and began merging. Those changes are still evolving. Current debate, about altering pension tax incentives and possibly bringing ISA’s and pensions closer together may herald further shake up of the savings and investment universe.
The difficulty for the new association is finding its proper place and maintaining a relevance that makes it worthwhile. The increase in savings mechanisms and the multitude of organisations in the not for profit and commercial sectors helping people save for retirement and providing financial education makes it unlikely that the PLSA will ever dominate its sector as it once did as the NAPF.
3. Auto enrolment progress update
As at the end September 2015 using data provided to The Pensions Regulator from the mandatory declarations of compliance, which must be filed within 5 months of staging date, the following numbers were released.
Since auto enrolment began in 2012, 60,861 companies have gone through the auto enrolment staging date. These companies have processed 20,550,000 workers through auto enrolment of whom 5,476,000 were automatically enrolled.
9,380,000 were already in a qualifying pension scheme and 5,266,000 were not enrolled into a pension scheme. As employers have five months to provide the declaration of compliance, there will be companies who staged between April and September 2015 for whom figures are still awaited.
4. What do employers think?
Jelf, the insurance broker and financial consultancy, has released its 2015/2016 Employee Benefits Survey which, as it says in its foreword, ‘lifts the lid on employer attitudes towards the benefits they provide and the legislation which shapes such offerings’.
Amongst other useful and well-presented information it found that…
- 68% of employers are in favour of retaining some level of initial tax relief for pension contributions. (Government consultation has put this principle up for change)
- 27% of employers do not want to see any change to the current tax system for pensions.
- 24% would like an individual savings account (Isa)-style tax system for pensions.
- 29% are in favour of one level of tax relief for all savers.
40% would like at least two years to adapt their pensions approach and communicate with employees ahead of any changes to pensions tax relief.
On Financial education….
- 91% of respondents do not believe staff are fully aware of the financial implications of changes to benefits, such as childcare support and pensions.
- 93% think changes to benefits require the provision of financial education in the workplace.
- 35% do not provide employees any assistance with financial education.
- 37% of respondents offer financial education support on a case-by-case basis.