Vision | January 2023
Welcome to the January 2023 edition of Vision, our quarterly round up of the latest developments affecting workplace pensions and savings.
Vision
Your regular insight into <br>workplace pensions, <br>savings and benefits
**January 2023**
Introduction and contents
Welcome
Welcome to the January 2023 edition of Vision, our quarterly round up of the latest developments affecting workplace pensions, savings and benefits and summary of key dates in the coming months.
We hope you find the content of Vision informative. If you have any questions on any of the items covered, please get in touch with your usual Punter Southall Aspire (PS Aspire) contact.
You can also keep in touch with us on LinkedIn and Twitter.
Key dates in the next 12 months
Key dates in the next 12 months
TPR’s single code of practice awaited
In March 2021, The Pensions Regulator (TPR) published a consultation on its new single code of practice which combines 10 of TPR’s existing 15 codes of practice into an updated and online format. It was expected that the final code would be laid before parliament in Autumn 2022, but this was delayed by the Government upheaval last year. TPR now hopes this will happen in January.
Lower additional rate tax threshold comes into force
In the Chancellor’s Autumn Statement, it was confirmed that the threshold for the additional rate of income tax of 45% will reduce from £150,000 to £125,140 from 6 April 2023. In Scotland, the threshold for the top rate band will reduce to the same amount, although the rate will increase to 47% (subject to approval by the Scottish Parliament). This reduction will see more high earners benefit from tax relief of 45% (or 47%) on their pension savings.
State Pension age review due to be published
Legislation requires the Government to carry out periodic reviews of State Pension age (SPA), to ensure any revisions in life expectancy are taken into account in future increases. In December 2021 the Government launched the second periodic review of SPA. In line with the first review in 2017, an independent report and a report from the Government Actuary’s Department will be published, followed by a final report setting out the Government’s proposals. The deadline for this is May 2023.
Pensions dashboards compulsory onboarding to commence
Following consultation, the Department for Work and Pensions (DWP) delayed the staging deadline for the first two cohorts of pension schemes to connect to the dashboards programme. This will now be 31 August 2023 for master trusts with 20,000 or more members and 30 September 2023 for certain defined contribution (DC) trust-based schemes with 20,000 or more members. See our separate article for more information.
Auto enrolment thresholds for 2023/24 announced
Auto enrolment thresholds for 2023/24 announced
The DWP has completed its annual review of the auto enrolment earnings trigger and qualifying earnings band and has concluded that these should remain unchanged for the 2023/24 tax year.
- The earnings trigger remains at £10,000 a year, or £833 a month, or £192 a week
- For those employers paying contributions based on banded qualifying earnings, those thresholds are also unchanged:
- The lower earnings limit is £6,240 a year, £520 a month or £120 a week
- The upper earnings limit is £50,270 a year, £4,189 a month or £967 a week
The lower earnings limit is also the earnings threshold above which employer pension contributions are mandatory for all members of a qualifying scheme, regardless of how they were enrolled.
The DWP believes this decision achieves the correct balance between affordability for employers and individuals, and the policy objective of giving those who are most able to save the opportunity to accrue a meaningful level of retirement savings. It also reflects the need for stability under current economic circumstances.
Pensions tax allowances for 2023/24
Pensions tax allowances for 2023/24
It was confirmed in the Autumn Statement that the pension tax allowances will remain unchanged for the 2023/24 tax year:
- The lifetime allowance will remain frozen at £1,073,100 until April 2026, with no inflationary increases applied. This means more and more individuals may face lifetime allowance charges.
- The standard annual allowance remains at £40,000 and the money purchase annual allowance, which impacts anyone who has accessed their pension flexibly, is also unchanged at £4,000.
- The tapered annual allowance will continue to apply to individuals with ‘adjusted income’ over £240,000 and ‘threshold income’ over £200,000. For those affected, the annual allowance will be reduced by £1 for every £2 of adjusted income over £240,000, to a minimum of £4,000.
DWP and TPR mark 10-year anniversary of auto enrolment
DWP and TPR mark 10-year anniversary of auto enrolment
Time does indeed fly by, and ten years have now passed since the phased introduction of auto enrolment began in October 2012.
To recognise that landmark, the DWP has published statistics covering what has been achieved over that time. The information focuses on the change in private sector workplace pensions, given that participation and contributions into public sector workplace pensions was already strong prior to the introduction of auto enrolment.
The statistics reveal that private sector participation in workplace pensions has increased for eligible employees in every industry, with total annual contributions increasing from £41.5 billion in 2012 to £62.3 billion in 2021. This reflects a jump of just over 50%.
The figures reveal how the policy has transformed pensions saving over the last ten years by normalising workplace pension saving and establishing a culture of retirement saving for a new generation.
More than 10.7 million employees were paying into a workplace pension in 2021, with the proportion of women saving, jumping by about 50% since 2012. And young people too have benefitted, with those aged 22 to 29 saving into a workplace pension more than doubling in the same time period.
In a recent blog, TPR acknowledged that, although auto enrolment has had a huge impact on the savings landscape, there is more that could still be done to involve more employees and to increase the level of pension savings being made. It is therefore disappointing that progress has not been made on implementing the Government's commitment to broadening out the coverage of auto enrolment by abolishing the Lower Earnings Limit for contributions and reducing the eligible age to 18.
PLSA publishes updated Retirement Living Standards
PLSA publishes updated Retirement Living Standards
The Pensions and Lifetime Savings Association (PLSA) has published an update to its Retirement Living Standards. Produced in conjunction with Loughborough University, the Retirement Living Standards help to show what life in retirement might look like at three different household income levels, based on a range of common goods and services assumed as attainable for each level.
The update illustrates how rising prices can impact household expenditure and living standards in retirement. Although there are increases in every category, the largest percentage increases are in the Minimum category, where the cost of achieving a basic standard of living in retirement has increased over the last year by almost 20% due to high inflation.
This reflects that a higher proportion of retirement income for those in that category will be spent on food and energy (which happen to have risen most in price). The PLSA said the figures show that the Government’s commitment to the state pension triple lock is especially important, but also highlight the need for pension reform to help more people achieve an adequate income in retirement.
TPR publishes guidance statement on supporting DC savers in the current economic climate
TPR publishes guidance statement on supporting DC savers in the current economic climate
TPR has published a guidance statement setting out how trustees of DC schemes should communicate and support members in the current challenging economic climate and how they can strengthen the governance and oversight of DC schemes and ensure their investment strategies support stronger member outcomes.
Whilst TPR’s guidance is aimed at trustees, the key messages regarding communication with and supporting members also apply to employers operating contract-based schemes.
The guidance statement takes many of its key messages from TPR’s Code of Practice 13 and associated guides on DC investment governance and communicating and reporting.
In the guidance statement, TPR says that while those who are early in their saving journey can take a longer-term view on their investments, members who are close to retirement could be impacted by current market conditions depending on the investment strategy of their scheme. Members in lifestyle strategies need to understand whether the strategy they are in, as they approach retirement, is consistent with their plans on how they intend to access their benefits.
Trustees should also communicate with members to help them understand what a fall in their DC pension means for them, depending on their personal circumstances, and to avoid making hasty decisions that could lead to risks such as being scammed.
While acknowledging there is no one-size-fits-all answer in these difficult times and that scheme-specific circumstances are important, TPR expects all trustees to consider the issues raised in the guidance statement and take appropriate action as part of their ongoing governance responsibilities.
In particular, TPR expects trustees to target efforts towards members most ‘in need of help’ and highlights the importance of supporting members close to retirement to help them understand the implications of current market conditions, encouraging members to take guidance from MoneyHelper before making any major decisions, and cautioning them against making hasty decisions which could increase the risk of scams.
The statement also contains a checklist to help trustees develop an action plan to review their scheme’s governance and investment arrangements, as well as to support their members.
If you would like to discuss how we can support you with communicating to members, please contact your usual PS Aspire consultant.
TPR publishes consolidated enforcement policy and updated prosecution policy
TPR publishes consolidated enforcement policy and updated prosecution policy
TPR has published its enforcement strategy, consolidated enforcement policy and updated prosecution policy to reflect its new powers (including new criminal powers) contained in the Pension Schemes Act 2021 and its experience from using its existing enforcement powers.
The new policies focus on addressing issues regarding pension security and ensuring effective regulation and comprise of:
- an enforcement strategy setting out the aims of TPR’s enforcement work and providing insight into the framework TPR applies when choosing cases for enforcement action;
- a consolidated enforcement policy which replaces and consolidates three previous compliance and enforcement policies on defined benefit (DB) funding, DC schemes and public sector pension schemes;
- an updated prosecution policy explaining how TPR will approach the prosecution of workplace pension criminal offences and other types of offences related to its functions.
TPR set out its range of enforcement powers, which are divided into regulatory, penalty, civil and criminal powers. These are largely discretionary, although mandatory penalties do exist, including a maximum £2,000 fine for failing to prepare a chair’s statement for example, being a key point of note for any small trust-based DC schemes struggling to keep pace with their trustee duties.
In relation to its compliance and enforcement investigations, TPR expects to engage with a scheme, trustee, employer or any other person(s) potentially facing enforcement action to set out its concerns before beginning a formal investigation. The aim in most cases is to resolve or mitigate any risks without the need for enforcement action, but where this is not achieved, an investigation may be opened.
Failure to comply with TPR’s information gathering can result in fixed penalty notices and escalating penalty notices.
The restoration of missing contributions, meanwhile, would see an employer receiving a notice ordering the repayment of these contributions, while penalty or criminal powers may be used in response to an employer’s conduct with regards to a notice.
Employers and trustees should familiarise themselves with TPR’s new consolidated powers and ensure they are complying with their responsibilities and duties.
Government announces pensions measures among financial services reforms
Government announces pensions measures among financial services reforms
In December 2022, the Government announced a package of reforms to UK financial services regulation. Referred to as the ‘Edinburgh Reforms’, the policy initiatives are designed to drive growth and competitiveness in the UK financial services sector and contain a number that will impact the pensions industry.
One of the Government’s key commitments is to increase the pace of consolidation in DC pension schemes so that no pension savers are left in poorly governed and underperforming schemes. To achieve this, the DWP, alongside TPR and the Financial Conduct Authority (FCA), will consult on a new Value for Money framework which will set required metrics and standards in key areas such as investment performance, costs and charges, and quality of service that all schemes will be required to meet.
The Government also confirmed its intention to lay regulations in early 2023 which will remove well-designed performance fees from the 0.75% regulatory charge cap that applies to the default investment strategy of a qualifying workplace pension scheme. This will support the Government’s ambition to encourage DC pension schemes to invest more of their assets in illiquid investments, such as UK infrastructure. Typically, performance fees form part of the costs and charges associated with such investments. As this is often considered a barrier to investment, the Government is planning to add performance-related fees to the list of charges that fall outside the scope of the charge cap.
In relation to Environmental, Social and Governance (ESG) considerations, the Government will consult in the Spring on plans to bring companies that provide ESG ratings into the FCA’s regulatory perimeter.
Recognising that these services are an increasingly important factor of investment decisions, the Government wants to ensure improved transparency and good market conduct in this area. An updated Green Finance Strategy will also be published early this year.
In addition, in line with the FCA’s new Consumer Duty and to achieve the objective of improving access to helpful support, information and advice, while ensuring consumers are protected, the Government says it is committed to working with the FCA to examine the boundary between regulated financial advice and financial guidance.
Key updates on these reforms will be covered in future editions of Vision.
Improvements to free benefits in the group protection market
Improvements to free benefits in the group protection market
Group health and protection insurers have long been aware that they need to differentiate themselves in order to increase sales. The tactic they use is to offer ‘freebies’, free benefits for employees alongside the insurance contract. The focus has been on offering benefits which HR audiences will hopefully see as a great addition to their wellbeing strategy.
Although the idea is a good one, it is only fairly recently that we have seen an increase in the quality of the freebies on offer and their usefulness in the real world.
When they were first launched, free benefits were usually only available through Group Income Protection and, as quite often not all employees are insured for this type of benefit (it was common for just Directors to benefit from Income Protection, although we see this less often now), HR teams were often reluctant to publicise offerings that only certain sectors of the workforce could access.
The latest trend is for insurers to now offer really useful, meaningful and modern free benefits as add-ons to Group Life Assurance contracts. This is more effective as this benefit usually covers the whole workforce. The most popular of these free add-ons with HR audiences tends to be virtual GP services.
Zurich was the first to introduce the idea and the appealing thing is that it is available for all employees and their immediate families. This is a really attractive benefit for most businesses and Zurich’s sales increased significantly. MetLife has quickly followed suit and we expect to see the other mainstream insurers doing the same to keep pace with the competition. HR departments love the idea because they can give one message to the whole workforce – keeping it simple is the key.
However, the insurance world hasn’t stopped with virtual GPs. MetLife has just introduced a funeral concierge service which employees and their families can use if they have to navigate their way through the death of a loved one. It’s basically like a wedding planning service for a funeral and, although it’s a good idea, it has less general appeal to HR. Nonetheless, it does give Health & Protection specialists something else to consider outside of insurance costs. It will be interesting to see what new developments insurers come up with to single themselves out in 2023.
If you would like to discuss what additional services might be available to your employees, please contact your usual PS Aspire consultant.
WPC publishes report on saving for later life
WPC publishes report on saving for later life
The Work and Pensions Committee (WPC) has published the final report in a three-part inquiry on protecting pension savers. This report considers who is not saving enough for an ‘adequate’ income in retirement and how to address this.
The report contains recommendations for the Government in seven areas:
Are people not saving enough?
The report notes that many newly auto enrolled people make the minimum contributions not realising this will not be enough to give them an adequate living standard in retirement. This is because the auto enrolment system was designed with the expectation that earners would make higher than minimum contributions, but many have not done so.
The report highlights that there is no consensus on a single definition of ‘adequacy’. The WPC recommends that by March 2023, the Government should set out its plans to build a new consensus on what an ‘adequate income in retirement’ means and what the pensions system should be designed to achieve.
2017 Automatic enrolment review
The former Pensions Minister Guy Opperman committed to introducing the recommendations of the DWP’s 2017 Automatic Enrolment Review by ‘the mid-2020s'. The WPC is disappointed not to have seen an implementation plan or impact assessment for this.
It recommends that the Government introduces the necessary legislation no later than the beginning of the next session of Parliament. It should also publish a timetable for consultation on implementation, taking account of cost pressures on employers and workers.
Minimum contribution rates
The report notes there is a consensus that many people need to increase their pension contributions to have an adequate income in retirement. In the long-term, the WPC supports a move towards a 12% minimum contribution rate as in Australia, but as a starting point says that minimum employer contribution rates should rise to 5%.
As a first step, the Government should say whether it expects it to be possible to increase minimum contributions in the foreseeable future and, if not, outline its plan for addressing the challenges set out in the WPC's report.
Self-employed people
Pension saving for self-employed people is now at 16%, compared to 88% of workers eligible for auto enrolment.
The WPC recommends that the Treasury and DWP work together to set a date to trial ways to default self-employed people into pension saving. They should also consult on the proposal to increase the main rate of National Insurance paid by the self-employed by 3%, with the option to have this increase paid into a pension if the self-employed person also contributes 5% (including tax relief).
Gig economy workers
The WPC is concerned that many people working in the gig economy are missing out on their right to build up a pension through auto enrolment because the company they work for classes them as self-employed. It recommends that the Government should bring forward an Employment Bill for parliamentary scrutiny as soon as possible, to increase the legal protection available to people in low-paid work and the gig economy.
The DWP should work with TPR to estimate the extent of the problem and what additional resources or powers TPR needs to be able to ensure employers in the sector comply with their auto enrolment duties.
The gender pensions gap
The report notes there is no consensus on how the gender pensions gap should be defined or any target to reduce it. However, data suggests the gap is significant—with one report saying that by the time an average woman reaches age 65 she will have saved £69,000 into her pension pot compared with £205,800 for an average man. The report notes there is agreement that the main cause for this gap is differences in labour market participation and pay—specifically that women are more likely than men to take time off to care for children and that low earners are more likely to be women.
The Committee recommends that the DWP works with colleagues across Government and other stakeholders to agree a definition and a target to reduce the gap.
Guidance
The Government is urged to do more to ensure people have the support they need in making decisions for retirement, including taking steps to raise awareness of the free impartial pensions guidance on offer from MoneyHelper.
The WPC also heard that schemes and employers are concerned about crossing the boundary from guidance to advice (which can only be given by FCA regulated firms) and so may be reluctant to provide any guidance to employees. The WPC recommends that the DWP and the FCA report on the progress in clarifying the boundary between advice and guidance by March 2023.
The Government’s response to the WPC report
In its response published on 23 January, the Government rejected a number of proposals put forward by the WPC including calls to set out a timetable to increase minimum auto enrolment contribution rates.
While the Government said it was committed to implementing the recommendations from the 2017 Automatic Enrolment Review, it refused to set out a specific timetable for doing so and reiterated its aim to implementing the reforms by ‘the mid-2020s’. It said it will aim to bring forward legislation at a suitable opportunity and when parliamentary time allows.
There is consensus in the industry that the Government's response to the recommendations from the WPC doesn't fully address how it plans to tackle the very real problem of under-saving in the future.
TPR, FCA and MaPS issue joint pension scams warning
TPR, FCA and MaPS issue joint pension scams warning
Prompted by the current cost-of-living crisis, TPR, the FCA and the Money and Pensions Service (MaPS) have jointly warned trustees and pension savers to be wary of a possible increase in activity from scammers looking to take advantage of people with money worries.
The organisations, all of which are members of the Pension Scams Action Group, warned that fears about the economy, such as recent extreme movements in gilt yields, could prompt savers to make rushed decisions about their finances.
Whilst there has been no concrete evidence so far of an increase in scam activity, the publicity is designed to once more highlight the threat posed by scammers. In the current climate, savers are urged to avoid making hasty or uninformed decisions about their finances, whilst trustees are asked to ensure they follow best practice to protect savers from scams and to be vigilant of suspicious transfer requests.
Pensions Dashboards update
Pensions Dashboards update
As we have covered in previous editions of Vision, the Government has been working with the pensions industry to develop a pensions dashboard service. This is a digital interface designed to enable individuals to see all their pensions information online and all in one place.
The Pensions Dashboards Regulations 2022 came into force on 12 December 2022 and set out trustee and pension administrator obligations in respect of pensions dashboards.
When do trustees and scheme administrators need to comply?
A scheme’s staging deadline depends on the size and type of scheme, with large DC master trusts and large DC schemes used for auto enrolment first to connect.
Acknowledging that the original staging timetable was ‘ambitious’ the DWP has extended the deadline for the first two cohorts by two months. The timetable for large and medium DC schemes is now as follows:
| Type* | Number of members** | Staging deadline |
| DC Master Trusts | 20,000 or more | 31 August 2023 |
| DC schemes used for AE | 10,000 or more | 30 September 2023 |
| DC Master Trusts | 10,000 to 19,999 | 30 September 2023 |
| DC Master Trusts and DC schemes used for AE | 5,000 – 9,999 | 31 October 2023 |
| Other large schemes | 1000 or more | 30 November 2023 to 30 September 2024 |
| Medium schemes | 100 to 999 | 31 October 2024 to 31 October 2025 |
* Excluding public service and Collective Money Purchase schemes
** Excludes pensioners
Regardless of their staging deadline, trustees should already be preparing for dashboards and can use guidance published by TPR to help with this.
The Pensions Dashboards Programme has also issued revised standards for connecting to the dashboard’s ecosystem. These outline the mandatory requirements for dashboard providers, trustees and pension providers, setting out how operationally, technically and in practice they must meet their legislative duties. The standards will come into force following formal approval by the Secretary of State.
TPR’s dashboards compliance and enforcement policy
TPR is responsible for ensuring that occupational pension schemes in scope of the dashboard regulations comply with their duties. In November 2022, TPR launched a consultation on its draft dashboards compliance and enforcement policy. The policy sets out TPR’s expectations for trustees when complying with their dashboard duties under the regulations, as well as intending to provide clarity on its approach to enforcing breaches of legislation.
TPR is aware that delivering dashboards is a significant challenge for the industry and will take a ‘pragmatic’ approach to compliance. However, it will take a ‘robust enforcement approach’ where it sees ‘wilful or reckless non-compliance’.
TPR intends to focus on the behaviours and breaches that it considers will pose the greatest risk to the provision of complete and accurate pensions information to savers and, initially at least, the focus will be on:
- connection compliance including schemes not connecting by their deadline, schemes only connecting part of their membership or schemes failing to remain connected to the dashboard’s ecosystem;
- investigating situations where a scheme is failing to return a match or possible match or where data is returned to the wrong individual;
- reviewing instances where schemes have failed to provide data in line with the legal requirements.
TPR expects schemes to keep clear audit trails of the steps they take to comply with their duties, as well as keeping records of compliance, steps taken to resolve issues with third parties, their matching policy and steps taken to improve their data.
The consultation closes on 24 February 2023 and TPR is aiming to publish the final policy in spring 2023.
Trustees and administrators will need to plan ahead in 2023 to ensure the requirements are met. They should check their staging date and put in place a project plan to ensure their scheme and data will be dashboard ready.
TPR publishes blog on member outcomes in DC schemes
News for trust-based schemes
TPR publishes blog on member outcomes in DC schemes
In December 2022, TPR published a blog focussing on member outcomes in DC schemes. Discussing recent regulatory changes such as the introduction of detailed value for member requirements for small DC schemes (covered in our August 2021 edition of Vision), TPR emphasises that all trustees ‘need to consider whether their governance structures are fit for the future investment environment’ or whether it would be appropriate to consolidate to achieve better member outcomes.
TPR highlights that DC scheme (investment) trusteeship is much harder against the current environment with CPI in excess of 10% and challenging investment markets. Trustees have had to take account of how members have been impacted by high inflation, increased lending rates, real income contraction and reductions in non-contractual hours or unemployment that can lead to an increase in opt out and early or flexible retirements.
Trustees need to consider whether their governance structures are adequate to deal with emerging systemic risks, including climate change and wider sustainability issues and make changes if they are not.
The blog’s conclusion is that even where trustees believe their scheme offers value for members, they should consider whether their members might be better served by consolidation with larger scale providers if they believe these have the potential for better member outcomes, for example because of greater governance resources and access to a wider range of investment and risk management opportunities.
TPR shares diversity and inclusion action plan after worrying research
News for trust-based schemes
TPR shares diversity and inclusion action plan after worrying research
TPR has published a new action plan to improve diversity and inclusion across trustee boards, after worrying new figures suggested that trustees are not prioritising this area. The research, carried out by OMB Research, found comparatively few schemes formally obtained and recorded diversity data in relation to the trustees and, where they did, many schemes did not identify any uses for this information.
The action plan sets out the steps TPR, in partnership with the Diversity and Inclusion Industry Working Group will take to encourage and support trustees to recruit diverse candidates and create a culture of inclusion.
It outlines how it will set trustees clear expectations on diversity along with providing practical tools and information on recruiting diverse candidates, creating and maintaining an inclusive culture, engaging with employers on diversity and ensuring communications to scheme members are inclusive.
TPR’s aim is to enhance and protect the outcomes for all savers. It believes that a diverse pensions governing body made up of people who have a broad range of characteristics, backgrounds, life experiences, expertise and skills will tend to lead to wider discussion and better decision making, which should result in long-term improvements to savers’ outcomes.
It suggests that, to improve equality and diversity, a trustee board needs to have a culture of inclusion and an effective chair who promotes this. It believes that supporting governing bodies to improve their diversity and inclusion practices is a key element to achieving these goals.
Cost of living crisis could trigger significant fall in pension savings
Cost of living crisis could trigger significant fall in pension savings
The impact of post-Christmas debt and higher energy bills in 2023 could lead to a significant reduction in pension saving, according to new research from the Pensions Management Institute (PMI).
Completed in November 2022, the research is based on a Censuswide survey of 2,000 working people. It found that 13 per cent of savers have reduced their contributions over the past twelve months, while 7 per cent have ceased contributions all together.
Although the findings suggested that most retirement savers have so far continued to pay contributions to registered pension schemes, there was ‘strong evidence’ that this may change in future, with a further 20 per cent of savers considering reducing contributions over the coming months.
The research also revealed that 40 per cent are already feeling the impact of the rising cost of living. The PMI predicts a further increase in this figure, possibly rapidly, particularly when the cost of higher energy bills is felt, with the Energy Price Guarantee for the average household set to increase from £2,500 to £3,000 in April 2023.
Reducing or cutting pension contributions has not been the only sign of the cost-of-living crisis, as the research also revealed that 17 per cent of respondents old enough to do so have withdrawn money from their pension savings to meet short-term needs.
In addition to this, over 75 per cent of workers were concerned that the cost-of-living crisis would have a detrimental impact on their plans for retirement, with 70 per cent believing that they would have to defer retirement.
In particular, workers typically thought they would need to work for an extra three years to due to the crisis, with 28 per cent believing that they would never be able to retire at all.
What can employers do to help members?
From a long-term savings perspective, helping members remain in their pension scheme as far as they can is a key priority. If they do need to leave the scheme, it’s important their decision is made with a clear understanding of the consequences of doing so. Communications are therefore a vital element in supporting members, both regarding decisions about remaining in the pension scheme, and wider financial resilience.
Embracing wider financial wellbeing can also help members with day-to-day money management, which in turn could help them to remain in the pension scheme.
Where the contribution basis allows for this to be considered, employers may be able to maintain their contribution to employees’ pension plans while allowing members to cease their personal contributions temporarily, or reduce personal contributions below the scheme’s usual minimum member contribution level. Care is needed before agreeing such a strategy, with the following key points to be borne in mind:
Where the scheme is a Qualifying Workplace Pension Scheme for auto enrolment purposes, the resulting total contribution should continue to meet the required minimum auto enrolment level (whether this be the minimum based on qualifying earnings or a certified alternative pensionable earnings basis). Although employers can allow employees to remain in the scheme on a lower contribution rate than the statutory minimum level (the scheme would then no longer be qualifying for them), it is important that the employer must not induce jobholders to reduce their contributions to below the statutory minimum level. Therefore, any decisions in this regard must be considered carefully.
Employees should be made aware that reducing their personal contribution will have an impact on the long-term value of their pension savings.
It is suggested that such offers are made on a temporary basis (e.g. over the winter period when energy bills are expected to reach their highest level) so that there is a return to the normal level of pension saving after a set period. This is particularly important bearing in mind that a high proportion of workplace pension plans are already receiving inadequate contributions on the standard basis, as covered in our article on the WPC report.
PS Aspire can support employers with communications to employees and can also deliver financial education presentations. More information can be obtained by contacting your normal PS Aspire consultant.
Investment market snapshot
Investment market snapshot
The below graphic shows how different asset classes available to investors have moved over the year to 30 September 2022. The market movement can give you an idea of how the investments in your pension arrangement may have moved over the same period, and the potential impact on employee savings.
If you would like more information on how to monitor the investments used by your pension arrangement, please contact your PS Aspire Consultant.
Source: Thompson Reuters
Please note that the value of investments may fall as well as rise, and individuals may get back less than they invested. Past performance is not a guide to future performance.
The market snapshot is provided for information purposes only. PS Aspire accepts no liability for any costs, liabilities or losses arising as a result of the use of, or reliance upon this information by any party.
