Having three areas of change; regulatory, legislative and political, all looming large like meteors on the pensions
market, it is unsurprising that product providers, professional advisers and employers are considering their next steps very carefully.
The Retail Distribution Review (RDR) brings with it a number of critical challenges with regards to work-based pensions. The concept of adviser charging (or arranger charging), whilst being intuitively right, is fraught with complications, such as the communication of the charge to scheme members, that need to be thought through very carefully indeed. Our plea to both Regulators and Legislators is to ensure that the introduction of any changes arising from the RDR, and the introduction of auto-enrolment and Personal Accounts, are joined up so that we do not end up with a double shock of impacts that negatively affect employer and consumer confidence in the pensions market.
The political landscape has an interesting overlay on this, with the Conservatives commenting that if they win the forthcoming election, we may see changes to regulations and the Regulator. Nigel Waterson, the Shadow Pensions Minister has also hinted at amendments to Personal Accounts. Nothing quite like certainty to help with planning!
But at a fundamental level, getting more people to save into workplace pension schemes, either through Personal Accounts or through a qualifying equivalent, has to be a good thing (accepting the debate on meanstesting). Consumer apathy has meant that take up on group pension schemes has been lower than the industry would like, particularly where individual advice is not being given. It feels therefore, that auto-enrolment has to be something that the industry should embrace, albeit that the initial proposals would make life very difficult for both employers and product providers. We will need to see what the final regulations say, and Aviva has lobbied very hard for a more workable solution for existing group pension schemes.
For larger employers, Personal Accounts can be complementary in their nature, being used to sweep up those employees that had elected not to, or were not yet eligible to, join other existing schemes that the employer may run. Aviva sees this as a good step to getting more people onto the savings ladder. For smaller employers, however, the situation will be somewhat different. These businesses are highly unlikely to have Pension Departments and will usually only offer one pension scheme to employees. The thought of introducing a second tier of payroll deduction for an additional pension scheme (particularly if the existing scheme has a deferred joining period) could, in our view, lead to the abandonment of existing provision in favour of a scheme that fits the whole workforce, particularly if this ‘new’ arrangement is seen as the benchmark. The challenge to product providers
and to professional advisers is therefore to ensure that existing provision can adapt to future needs and the benefits of current arrangements are valued by both employers and employees.
I guess this leads us to a question that is being asked more and more; what should employers be doing right now? It’s a very difficult question to answer whilst legislation and regulation are in a state of flux. If an employer has an existing pension scheme and is contributing at a reasonable level to a high number of employees, then the simple answer is to plot a steady course and don’t take any rash actions at this stage. Aviva will be issuing regular updates on both RDR and Personal Accounts as and when more of the detail becomes clear to help guide advisers and employers through the maze.