The second quarter of 2014 was meant to be mayhem for providers and advisers, yet many report things are quiet - almost too quiet. John Lappin tries to track down the Q2 stagers
Have some our stagers gone missing? That is certainly the concern among pension providers and advisers who believe that many April and May staging firms may not have made the cut.
Some suggest the gap could be as high as a third of eligible employers, and that by the autumn, the Pension Regulator could be confronted by thousands of non-compliers.
Such concerns have led Standard Life to challenge the Pension Regulator to explain what action it may take against such firms saying that it needs to be seen to be doing something and soon.
Standard Life head of corporate strategy & propositions Jamie Jenkins, speaking to Corporate Adviser, said: “We have an elephant in the room which is that as many as a third of April and May stagers cannot be accounted for. This may be either because they are being tardy in getting their schemes sorted or because they have paid less attention to their staging date than to their auto-enrolment date.
“The regulator is torn between being seen to have teeth but not wanting to punish small employers. But they will have to do something at some point.
“We either need to get a statement from TPR that they are happy with the way things are going, or they should come out and fine some employers.”
The issue was first raised by Nest chief executive Tim Jones in May – then referring to April stagers. Providers say this suggests there may be an issue across many different types of employer.
According to TPR, up to the end of May 2014, 15,099 employers had confirmed their auto-enrolment scheme details. It has put out a robust defence of staging to date. It says 99 per cent ofemployers have staged on time.
TPR’s Charles Counsell says: ”There is plenty of good news, with employers Keen to ensure they do things properly and low opt out rates.”
However a Freedom of Information Request from Hargreaves Lansdown shows that from 1 October 2012 up to 1 May 2014, 22,940 employers should have hit their staging date. They do have up to 5 months to register their scheme, and with over 14,000 having hit their staging date in the past 2 months, so it is possible many of them just have not yet got around to it yet.
Hargreaves Lansdown head of pensions policy Tom McPhail says: “Nevertheless, these numbers seem to be consistent with anecdotal feedback we’re getting from within the industry that some employers in the current wave of staging are struggling to meet their obligations on time.
“It isn’t yet clear whether this shortfall in scheme reporting is the result of delays in the registering of schemes which are fully compliant, or in fact it is attributable to thousands of employers failing to hit the deadline. We’ll find out one way or the other over the next couple of months.”
However, it doesn’t appear to ruffled the pension minister’s feathers yet.
Pensions minister Steve Webb, quizzed on the issue at the Lansons Future of Financial Services conference last month, said: “I am very much a glass 90 per cent full kind of man. On automatic enrolment, we had the doomsayers of the industry saying with the 2014 capacity crunch, it was all going to go pear shaped. Here we are, it’s June, and we have already passed the so-called first crunch. We talk to providers all the time, we look at the number of people who go to a provider. It is looking pretty good on the first of the two peaks.
“People can defer for three months. If someone wants to opt in, they can, but generally they don’t. If you have a staging date, it is a staging date, but you have three months and that gives a little bit of flexibility.
“But obviously, if you don’t do what you should do, it has to be backdated, but our goal is to educate and enable. Yes, we have done a bit of enforcing with TPR naming and shaming a company which persistently didn’t do it, but, overwhelmingly, we are getting there.”
He also suggests it may get easier to monitor smaller firms. He added: “The smaller the firms we get to, the easier it is to monitor because they are going to a smaller group of providers. We can monitor much better. Because it has been on the television. Because people know about it, it is far more likely a worker will say, ‘why haven’t you done it for me yet?’”
Clearly to date, the minister believes the situation is under control, but providers may not be entirely satisfied with this.
Jenkins says: “What we mustn’t do is look back in a year’s time and say, if there was a problem, we were all off working on other things, we were talking about CDC or small pots, when the things that sits at the core of everything was falling over.”
JLT Employee Benefits executive director Mark Pemberthy says: “Going back to early stagers, 18 months was common as a panic phase. At the back of 2013, it was three to six months. Now it is not uncommon to be first engaging with organisations at or very close to their staging date. With our existing clients, we have not seen so much of an issue, but we were expecting new clients and inquiries, and those are not at a particularly high level. You could draw a conclusion that many employers aren’t being proactive.”
Ferdinand Lovett, associate at specialist pension law firm Sacker & Partners, says firms should look at the ruling regarding Dunelm dating to April 2013. The home furnishings retailer failed to register and then blamed having key personnel away at key times and the fact that its middleware was not fully functional for its non-compliance.
He says: “To extrapolate that to where we are now, we have businesses which haven’t got the dedicated pension resource. From our perspective, with firms is it important to reach out and get guidance early. It is often small things like registration dates they get wrong. In our experience, it is smaller things which employers have come unstuck with. The regulator has very little discretion to give, say, a later staging date unless you give them notice. The law doesn’t allow it.”
He adds: “The regulator has a whole range of enforcement and compliance tools, but has shown it wants to be reasonable. Fines are going to be reserved for where there is systemic and deliberate non-compliance. But they do have the power to make employers pay back dated contributions and make employers pay contributions without getting employees to do so too”.
Aviva head of policy, pensions and investments, John Lawson says his firm has seen a growing gap developing since the start of the year.
The firm has been proactively contacting employers which it has relationships with. Lawson says: “We have asked “Are you going to stage with us? If not we want to know.” A lot of employers are just not responding to that call. I don’t think it is deliberate but I don’t think they understand the implications of not complying.”
He says that advisers are finding much the same thing.
He says that Nest, Now and the People’s Pension may find the gap even more difficult to gauge as many very small firms may have had no contact with the industry before. Perhaps the only way to definitely gauge what is happening will be through the Government’s PAYE information.
Lawson also worries that will be a substantial time lag of three or four months between staging and reporting registration. That, he says, could leave TPR facing thousands which haven’t staged over the summer but only finding out late in the year.
“If you have four or five thousand non compliant employers, we don’t know if TPR has the resources to deal with it. You are looking at a lot of pressure. For some employers an official phone call will move them to action, but not all. You would want TPR and the industry to talk about that gap. The TPR should say in advance what it is going to do.”
Lawson says that one solution may be considering putting in fire breaks, to delay staging for some later firms while those which haven’t staged in a particular tranche are sorted out.
“As an industry, this is the real project, we don’t want the wheels to come off. It would be a disaster if headlines said there has been mass civil disobedience among employers. We would rather sort the problem now.”
Institute of Directors senior adviser, financial services policy Malcolm Small says: “It’s been clear to us for some time that the complexities of auto-enrolment are beyond the ability of many smaller employers to understand and engage with, which raises the risks of inadvertent non-compliance.
“However, the time to get worried will be as we wade into the huge numbers of really small employers in the next couple of years. Our research has thrown up some evidence of intentional non-compliance amongst this group. Add in unintentional non-compliance, and this is where the fun could really start.”
Should we extend the scope of auto-enrolment?
The Labour Party has proposed extending auto-enrolment to another 1.5 million lower paid workers. The shadow work and pension secretary Rachel Reeves has suggested the threshold for inclusion should be reduced to the national insurance lower earnings limit of £5,773.
This would bring the policy more closely into line with the Turner Commission’s original proposals, and address Labour concerns that women in particular are being left out of the scheme.
In a speech made in London in May, Reeves said: “When it comes to the auto-enrolment threshold, the Government say that people with low earnings would save too little for it to be worthwhile and this is the basis of Steve Webb’s argument today that joining a workplace pension scheme “would not be the right option” for people in this position. I have to say it is quite a state of affairs when we have a pensions minister who says that 1.5 million low paid workers should not be saving for a pension.”
The pension industry appears divided between the very positive, to those who would welcome the change but with other accompanying adjustments, through to those who feel it is important to keep very low earners, at least, out of the auto-enrolment system.
Master Adviser partner Roy McLoughlin is one of the most bullish. He says: “The great thing about going around the country as I have been doing, is that you find the appetite for this is incredibly positive. I sense that with lower paid people. One of the clients actually said as a result of staff reaction, well that is it, we are going to open up the scheme to everyone who works for us, whatever they earn.”
He says suggestions that poor people can’t afford it, are poppycock. “It is up to them whether they can afford it or not. What else are they going to do? The whole point of this is it has emancipated the masses. I have never had such a positive reaction to pensions in my whole life, so why not open it up?”
However JLT employee benefits executive director Mark Pemberthyis opposed to the move, at least without other changes, and says that the current structure has been thought through.
“The ‘Making auto-enrolment work’ working party looked specifically at this in 2010 and their conclusion was entirely sensible that there should be some clear water between the auto-enrolment trigger and the lower qualifying earnings band to make sure that any contributions were at a meaningful level”, he says.
“If you don’t have that gap there is a potential you will have pennies being saved into a pension scheme. It doesn’t provide any meaningful benefit for the member and it is more administration.”
He also believes that talk of exclusion is not entirely accurate.
He says: “Whilst lower earners are not being auto-enrolled, they are not excluded from pensions membership. If they have earnings above the qualifying earnings trigger then they can still opt into the pension scheme. They are not being totally alienated from the system. From our perspective we see the logic in having a reasonable gap between the auto-enrolment trigger and the lower band.”
Pensions Management Institute technical manager Tim Middleton says: “I think this is political jockeying for position. Because the Coalition linked the earning triggers to the basic salary, that effectively excluded a lot of people, they intended to include. By reversing that change they will bring a lot of people in, but it made sense to keep the very low paid out of AE.”
However he says the big change comes with the Budget where people can access their pension cash more easily. “It may make sense for lower earners to go into some form of workplace saving. There would be some benefit to bringing them back in. It is not necessarily a bad idea, and people have the option of opting out.”
Aviva’s head of policy (pensions and investments) John Lawson says much depends on the details.
“The entry point is quite high now, being benched to the personal allowance. If you keep band earnings you might get people with the threshold at £5,000 and the entry point at £6,000 you might end up with people who are getting £30 annual contributions. You still need a differential between the point at which you are enrolled and the point at which contributions start. So I would advocate getting rid of band earnings and contribute from pound zero. More people would get meaningful contributions and you might get an entry point of £5,000.
“If it included people doing part time work, it would spread numbers of contributors but the push back will be from business organisations. They don’t want to contribute any more so extending band earnings or even increasing the number of workers included would see push back.”