20th century solution for the digital age
The Pensions Regulator needs to make its auto-enrolment rules more user-friendly says Ian McKenna, director of F&TRC
Over the last few months I have found myself spending more and more time working with organisations who are building solutions to embrace autoenrolment with a clear objective of really making it work for employers and most importantly employees.
Sadly the more I see, the clearer it becomes just how poor a job The Pension Regulator (TPR) has done in delivering a practical and realistic set of rules. It is becoming increasingly obvious to me that it is no longer a question of if, but when, the current pension reform initiative fails.
The key issue is should the whole process be scrapped or can the delay in rolling out auto enrolment to smaller employers be used as the opportunity to rewrite the rulebook and arrive at a set of solutions that truly meet the needs of the British public.
TPR clearly lacks an understanding of the dynamics of business in the modern world, having produced a regulatory framework littered with barriers to the delivery of cost reducing services to consumers. While the rest of the world is becoming increasingly more digital, TPR has built a regulatory framework for a paper world that has not in practice existed since the last century.
The excuse for this will be that it is essential not to socially exclude anyone who may not have access to the technology, so is it right to impose unnecessary costs and other inefficiencies on the majority of the population just to help a small minority? That minority do need helping but in ways that do not adversely affect the majority.
The following are just a few examples of some of the challenges. Nest recently announced that it will allow scheme members to opt out using paper, online or by phone. But given the prohibition on employers holding stocks of opt out forms, apparently they must be obtained from the pension provider. It is being seriously suggested in certain quarters that if a benefits platform built a similar capability into its system this would be a potential breach as the benefits platform will be acting for the employer.
It is becoming increasingly obvious to me that it is no longer a question of if, but when,the current pension reform initiative fails
The default answer to questions for which the TPR does not have answers is apparently “it is all in the rulebook” except that in so many cases patently it is not.
One example of this is how do firms address the question of employees engaged initially for a limited period, which would not make them eligible for auto-enrolment, but where due to the success of a project or activity it is extended so that those employees ultimately should have been auto enrolled from inception.
Should the employer dismiss these staff or hire replacements? If not are they opening themselves up for a fine? I know one adviser firm that has been struggling to get a sensible answer on this issue for months.
The Coalition government has committed to removing the level of red tape and bureaucracy businesses have to deal with. Clearly this message has not reached TPR.
Pension reform will never work in this or any other country unless you have a regulator that recognises that the practical challenges that the marketplace faces are as much a problem for the regulator as they are for the industry. This is also a lesson the FSA needs to learn. Ruling by fear never works in the long term.
Perhaps the delay in commencing auto enrolment may in fact be a blessing. It creates a window where the current failings in what has been delivered might be reviewed with the objective of achieving a workable set of regulations rather than a mandate for revenue generation through fines.
UK citizens deserve world class low cost pensions and the technology exists to deliver them.
This objective is not going to be achieved as long as we are subject to a pension regulator that lacks the vision or insight to embrace the 21st century. Hopefully it is not too late for a change.