Independent Financial Advisers Glasgow News & Guides

Pensions experts have identified a shopping list of key areas where the Government needs to focus its energies if it is to meet its Red Tape Challenge and reinvigorate workplace pensions.

These include the overly prescriptive rules on the type of pensions employers need to offer, and how employers communicate with the members of their pension schemes.

Responding to the Government’s “Pensions Spotlight”, the National Association of Pension Funds (NAPF) has called on the Government to seize the moment by streamlining regulations. It added that the Government needs to ensure that the regulatory regime for pensions protects members’ interests while not imposing unnecessary burdens on employers who are providing good quality pensions to their workforce.

Joanne Segars, NAPF Chief Executive, said:

“We welcome that the Government is taking a long hard look at pensions regulation. This is a positive first step in its wider commitment to reinvigorate workplace pensions.

“We need a regulatory system that protects members’ interests, whilst also supporting good quality workplace pensions.”

The Government’s proposals to equalise Guaranteed Minimum Pensions (GMPs) would create massive costs and administrative burdens, increasing pressure on pension funds at a time when they are struggling with a tough economic environment, pensions experts have warned.

GMPs are sums of money built up by members of occupational pension schemes who have contracted out of the State Earnings-Related Pension Schemes (SERPS). The Government claims that it has to legislate to put the UK in line with EU law.

The National Association of Pension Funds (NAPF) argued that new legislation being proposed by the Department for Work and Pensions (DWP) would cost pension funds billions of pounds in extra liabilities and administration, and could also affect public sector pensions.

In its response to the DWP consultation on GMP equalisation, the NAPF has urged the Government to scrap its proposed new regulations. It also questioned whether there is any legal requirement for equalisation, and it has asked the Government to publish the legal advice on which it is basing its policy-making.

The UK’s leading pensions body also warned that, instead of clarifying the situation, the planned regulations would create more uncertainty for pension fund trustees, who would not know whether or not they would have to equalise GMPs.

A survey by the Chartered Institute of Payroll Professionals (CIPP) has found that the majority of employers (74%) have not started communicating to employees about automatic enrolment, which starts to roll in from October this year.

The CIPP survey, which polled 103 payroll, HR, accounting and finance professionals, also found that a small number of respondents (4%) were unsure of their staging date.

The survey also revealed that 61% of companies have decided where the responsibility for automatic enrolment lies; for most (42%) it will fall to payroll departments. For nearly a quarter of organisations (23.5%) it will fall to HR departments, 9% finance and interestingly over a quarter (26.5%) of all payroll, HR and finance departments will work together.

Automatic enrolment, otherwise known as the Workplace Pension Reforms, will be introduced from October 2012. Automatic enrolment will see every eligible employee enrolled into a qualifying pension scheme to which both the employer and employee will contribute. The Department for Work and Pensions have started communicating these changes through various media channels since January.

The Department for Work and Pensions (DWP) has published a package of regulations to help employers prepare for automatic enrolment into workplace pensions. 

This package, alongside the revised timetable for automatic enrolment published last week, is designed to make it easier for business to manage their new duties. With these regulations in place, the legislative framework underpinning these reforms is now almost complete.

The DWP has also published the Government’s response to the consultation published last summer on workplace pension reform regulations, and guidance on certifying pension schemes.

The consultation looked at arrangements to put into effect the remaining recommendations of the Making Automatic Enrolment Work Review on optional waiting periods and simplification of the certification process.

It also covered new statutory instruments on special occupations not included previously; seafarers, offshore workers and police not under a contract of employment.

A revised timetable for automatic enrolment was published on 25th January, giving employers clarity and certainty about their starting dates.

This followed the announcement, in November, that small firms would be given more time to prepare for automatic enrolment to help them out in exceptionally tough economic times.

A revised timetable for when employers of all sizes must start enrolling their staff in a workplace pension has been set out by the Government.

Large employers, those with 250 or more employees, will not face any change in the date they are due to start enrolling their staff.

This follows the announcement in November that small businesses would be given more time to prepare for automatic enrolment to help them out in exceptionally tough economic times.

Minister for Pensions Steve Webb said:

“Automatic enrolment will begin on time this October, taking up to ten million people into pension saving, many for the first time ever, and all employers will be part of it.

"We have done all we can to ease any burden on business the reforms will bring and employers of all sizes now know the date they need to start enrolling their staff."

The timetable for employers to begin enrolling their staff starts with the largest firms first, followed by medium, then small companies.

Automatic enrolment will begin in October 2012. All existing firms will have enrolled their staff by April 2017, followed by all new employers by February 2018. This new timeline means that 70% of individuals will be automatically enrolled before the next general election.

The level of pension contributions will be phased in over time to help employers and individuals adjust. Full contributions will have to be paid from 1st October 2018.

A consultation and draft regulations with more detailed information will be published shortly.

Businesses would have to inject at least £300bn into their final salary (defined benefit) pensions if a new EU law goes ahead, causing knock-on damage to the UK economy and jobs market.

It would also lead to the closure of more final salary pensions in the private sector, the National Association of Pension Funds (NAPF) has warned.

The NAPF issued the stark warning in its response to the European Insurance and Occupational Pensions Authority (EIOPA) on the review of the Institutions for Occupational Retirement Provision Directive.

To enhance the security of occupational pensions across EU member states, EIOPA is proposing the application of a ‘Solvency II type capital regime’ to assess the solvency of pension funds.

Under this system, which has been designed for insurance companies, pension funds would be required to increase their funding levels, making the provision of pensions much more expensive. This would lead to employers paying more at an already difficult economic time, leaving them with less money for investment and job creation.

Joanne Segars, Chief Executive of the NAPF, said:

“The overall objective to make European pensions more secure is one which we support. But the introduction of Solvency II type rules will have the opposite effect.

“Faced with extra funding demands, many employers will revisit their pension arrangements. And what we are likely to see is the closure of more final salary pensions.

“The UK pension system already provides a strong system of member protection through the employer covenant, the work of the Pensions Regulator, and the safety net provided by the Pension Protection Fund. We do not need new solvency rules for pensions.”

The number of businesses that have closed their final salary pension to all of their staff has jumped by a third, the National Association of Pension Funds (NAPF) has revealed.

Its latest Annual Survey found that almost a quarter (23%) of pension schemes are now shut to both new staff and to future contributions from people who were already in the pension. This is up by a third from 17% in 2010, and was just 3% in 2008.

The survey shows more change is inevitable. Among those pension schemes which are closed to new staff but still open to existing staff, 30% expect to close the pension altogether in the next five years. They plan to then move staff into a ‘defined contribution’ pension, where the employer is exposed to much less risk.

Meanwhile, one in ten (11%) say they will keep the existing defined benefit pension scheme structure, but will make it less generous. This could include changing accrual rates or moving from a final salary to a career average structure.

The findings reflect an escalation in the decline of final salary (or ‘defined benefit’) pensions, as schemes that have already closed to new joiners shift their focus to existing members.

Final salary pensions have been increasingly strained by rising longevity, poor investment results, and red tape. Employers have been closing these pensions to try to manage risks and mounting costs. Only 19% of private sector schemes are now open to new joiners, compared with 88% ten years ago.

One in three people (31%) accepted a new job with no idea about whether it came with a pension, meaning they ignored a benefit that’s typically worth thousands of pounds a year, the National Association of Pension Funds (NAPF) has warned.

The majority of larger employers (93%) do not yet have firm plans in place to meet pension auto-enrolment regulatory requirements, according to recent research.

Young workers are nearly four times less likely than their older counterparts to be saving in their employer’s pension scheme, new analysis has revealed. These figures show a stark generational gap in pension provision, with only 15% of young employees aged 16-24 participating in a workplace pension scheme.

The extent of the Government’s communication challenge over the auto-enrolment of workers into workplace pension schemes is highlighted by a new survey, where over half (53%) of UK workers state that they are totally unaware of the reforms.

The High Pay Commission has recently published its latest report, 'Directors’ Pensions: in it for themselves?', which looks at the increasing pension gap that exists between the workforce and senior executives in the private sector.

An independent investigation has warned that private sector workers must get a better deal from their pensions if they are to save enough for retirement.

The Pensions Regulator has published a response to its industry discussion paper on the regulation of defined contribution (DC) pensions.

Figures released by the Office for National Statistics (ONS) have shown that falling pension scheme membership by employees in low income brackets is affecting how they will live when they retire.

If you think you may have an old pension but are not sure of the details, the Pension Tracing Service may be able to help. They will try and match the information you give them to one of the schemes on their database and inform you of the results. If they have made a match they will provide you with the contact address of the scheme(s) and you can get in touch with them to see if you have any pension benefits.