Have your children been automatically enrolled into a workplace pension yet? By early 2018, the first phase of the government’s efforts to get an additional 10 million people saving into pensions should be complete.
By saving into a workplace pension our children should be setting themselves up for a financially secure future. But, they need to recognize the importance of saving and having their employer help in this. It is crucial that they don’t “opt-out” when contribution rates increase next year. Remind them over Christmas dinner that their employer is matching their savings – in effect a ‘pay rise’ that they miss if they opt out. They will also see an additional deduction from their pay packet diverting directly into pension savings but the government softens the blow by adding a 25% tax refund.
I have always applauded the government’s efforts to restore trust and confidence in our pension system. I just worry that the Department for Works and Pensions has been playing catch-up after too many years of neglect. High profile failures including Equitable Life, Woolworths and the BHS Pension Fund should have been preventable. The Government has responded by tightening regulation on so-called “defined-benefit” pension promises but to a large extent the ‘trust and confidence’ horse has bolted.
Unlike the people who suffered from the high profile failures of the past, the additional 10 million pension savers (including our children) now auto-enrolled into workplace pensions have received a very different “defined-contribution” pension promise. The regulation of defined-contribution pensions is also playing catch-up.
In draft regulations released at the beginning of December, the government reported that 70% of employees new to pensions have been enrolled in Master Trusts. These range from large schemes such as NEST – the National Employment Savings Trust, set up by the government when auto-enrollment was introduced in 2012 and with the very best trustees – to very small schemes with no track record and trustees with little or no previous experience. Master Trusts are multi-employer pension funds that allow small employers to completely outsource the management and safeguarding of their employees’ pension savings.
Laudably, but in my opinion belatedly, the government is requiring Master Trusts to be authorized and their activities supervised by The Pensions Regulator (TPR). It is interesting to note that one of the main goals of the TPR is to apply a “risk-based approach to protect member outcomes” – i.e. nothing less than our children’s financial futures! Here are the five risk headings against which they will monitor Master Trusts:
Trustees should have appropriate experience and skills
Administration to be of a high standard
Investment strategies (offered to savers) to be appropriate and well managed
Savers to get good value
Good communication and reporting to savers
The draft regulations will be finalized in 2018 and the authorization regime fully introduced by early 2019. In the meantime, Master Trusts have been required to give assurance of good management to TPR and in one case this increased supervision has resulted in NOW Pensions pulling back from the market while it sorts out its internal governance.