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Webb: auto-enrolment can help pension industry clean up its act

by Brian Cantwell on Apr 24, 2013 at 09:24

Webb: auto-enrolment can help pension industry clean up its act

The pensions industry should use auto-enrolment as an opportunity to clean up its act and regain the public’s trust, according to pensions minister Steve Webb.

Webb (pictured)said the pensions industry was often regarded as unclear and self-serving, and it should use the reform as a way to alter public perception.

‘I think the industry needs to recognise that time and again it has not been seen to be on the side of consumers, and that’s a terribly difficult reputation to shake off,’ he said.

‘If we have this vast auto-enrolment now and firms are not seen to have put consumers first, the damage it could do could be enormous.

‘It’s a chance to clean up its act basically. This is a chance to make a fresh start with a whole new set of customers.’

Auto-enrolment opt-out rates

Auto-enrolment began in October 2012 for companies with 120,000 or more employees, and small and medium-sized businesses will come under the reforms from the end of 2013 onwards.

The reform has been broadly welcomed: it has certainly been given an easier ride than Webb’s other flagship policy, a flat-rate state pension, but its critics have pointed out it can only be judged a success if it maintains low opt-out rates.

Webb said information from employers so far suggested an opt-out rate of between 10% and 15%, which was within the Department for Work and Pensions (DWP) expectations.

If auto-enrolment engaged consumers in pensions, and led to a more transparent and cheaper pensions market, it would achieve two of Webb’s aims at once.

Naming and shaming

In October 2012, Webb pledged to ‘name and shame’ pension providers who allowed auto-enrolment into ‘lousy, high-charging old schemes’. At the same time he said he would praise providers who enrolled members into low-charging well-run schemes.

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25 comments so far. Why not have your say?

sol trader

Apr 24, 2013 at 10:26

There may have been excesses in the UK pensions market in the past but I'm not at all sure siphoning taxpayers money into "cheap" foreign "alternatives" is going to end well in the long run...

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Another Anon

Apr 24, 2013 at 10:27

From my experience the public are more concerned about the continual changes to pension legislation rather than the providers, they have control of the advisers and providers that they use but no control over legislation.

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Charles Rickards

Apr 24, 2013 at 10:34

Mr Webb, needs to clean up the pensions legislators. Too many years of reinventing the wheel. It is not about cost, it is all about value. Very much like government or regulators. We will happily pay the cost, if we feel we are getting good value!

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Apr 24, 2013 at 10:36

the opt out rate to date is really a scandal Mr Webb. Nearly all of those firms who have had to comply to date have a pre-existing pension scheme already in place, and still 10-15% have made the effort to opt out.

However, your point about pension firms has an element of truth about it, but it stems from the disaster of stakeholder. There will never be a DC pension, be it a PPP or Employer scheme that will be good for someone throughout their life. It is nieve to assume commercial companies as well as NEST can provide fund management at a low price that can twist and turn according to the vaguries of the markets over the years.

A pension scheme for youngsters will have to be there for 45-50 years. Who knows what the next 50 years will bring, will the Far East reign supreme? will Europe survive? what is the future of the bond market? Will houses be a reasonable investment? Will all Banks be nationalised?

Over the last 30 years, for a pension to be any good, the beneficiary must review holdings and strategies every 5 years or be left behind, as well as take an interest. If you think anyone will provide this level of service at a very low cost then you are mistaken.

To get pensions really moving in the workplace you must allow qualified advisers to earn a decent living informing, engaging and educating planholders, adding and increasing value according to the individual's needs.

A project for the future or one that needs your attention now?

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Ian Lees

Apr 24, 2013 at 10:43

Why would any sensible individual allow themselves to be shoe horned into a " default fund ", of a company sponsored scheme - which is " forced to pay " 3 % of theri earnings - and the employee paying 1% of their earnings - for a contract which is riddled with get out clauses. We have already seen the results of Tessa's, the changes made to ISA's - cash and Stcks and Shares - the changes made to childrens savings plans - as a result of incompetent gov't ministers and their ad hoc approach to savings and pensions. Insurance companies who have robbed peopel of their full pensions ( e.g Scottish Widows and Equitable Life ) . . . and their loss of business - that they need to be purchased by a bank . . . to give them some financial assistance I.E Quantitive Easing by Gov't by way of a blank cheque to the TSB . The loss of control of their investments are the biggest RISK to their investment. The insecurity that the Gov't are going to make use of pension funds for " infrastructure investments ", - well I do not want my future to rely on incompetent government MPs who are only interested inshort term profits for themselves. HAving lost some 82% of my pension from the Trustees of Scottish Widows through their fiddling the figures and their insider dealings with Scottish Equitable - no thank you ! I for one will NOT BE PURCHASING ANY PENSION .. . I WILL NOT BE AUTO ENROLING ! Dear Mr Patheticus . . . . . . . I'm OUT !

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Apr 24, 2013 at 11:03

Whilst I disagree with some of the detail, Webb's headline is absolutely correct. Financial Services is as Michael Johnson of the CPS said "in the last chance saloon", more money flows into ISA's than DC plans and to me that is telling.

Lose tax-relief at the higher rate, allow earlier access, enable lower charges to be maintained and allow NEST to support employers through "middleware" to allow employers to meet their duties without the nonsense around removing other restrictions.

We need to turn a nation of borrowers and spenders into a nation of savers or we are in serious trouble, AE is a very needed step and the solution is dependant on a trusted, sustainable and cost-effective Financial Services Industry.

I doubt that Resolution and others will re-write on modern terms voluntarily but this gives any adviser real ammunition to identify and target poor providers client's for new work and deliver a better deal to all parties.

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Scott Gallacher

Apr 24, 2013 at 11:42

How will AE 'engage consumers with pensions'?

The whole point of AE is that consumers do not need to engage with pensions, their employer automatically puts them in a pension.

Whilst AE might address some of the current savings crisis it will not catch those that choose to opt-out. I understand that opt-out rates are currently 10-15% for the biggest employers I suspect that this rate will increase significantly when smaller employers are involved.

Those people that do opt-out will be by definition those with lower earnings and/or a distrust of financial services - hardly the financial advisers dream clients, especially when you consider the best advice will almost certainly be opt-in to your AE scheme.

The government should have gone with a compulsary pension scheme with employer contributions of 10% of total salary (phased in a 0.50% or 1% per annum for 10/20 years), no employee contribution (hence no opting out) and no impact on existing benefits (lifetime allowance, etc.). However, I suspect AE will end up their eventually.

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Andy King

Apr 24, 2013 at 11:54

The FCA have just written stating that advice to emploers is totally outside its remit from Parliament as it is a non regulated activity

This means Anyone can advise employers including a macdonald s employees

So Until Unregulated Unqualifed advisers are prevented from advising Employers and charge Fees taken from employees pension funds WITHOUT employees agreement then this pension debacle can in no way be described as being cleaned up

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Apr 24, 2013 at 12:05

"This means Anyone can advise employers including a macdonald's employees"

That should be OK then, given that apparently Maccy D's qualification requirements roughly equate to that of a financial adviser, aparently...

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Ian Lees

Apr 24, 2013 at 12:30

@ Peter, of course it does . . stevey webb is running a coach and horses through FCA legislation, Retails Destruction Review (RDR ) etc., Stevey Webb wants employers to find a suitable auto enrolment - usually from ustable insolvent insurance companies - who have proved their lack of value with high charges poor quality administration and theft of peoples savings ( whether labelled misselling or any other euphanism - to dilute the seriousness of fraudulent trading . . .the fraud or the sale e.g PPI ). How can an employer offer a " pension scheme arrangement " - take money form the employee - without giving advice ? Easy Scottish Widows offers a free service or through IACEW etc., - i.e accountants chartered and certified - who are in the main not permited to give advice - and are totally unaware of the consequences for accountants or solicitors or other third parties - giving any advice on investment business. Even Banks whose advisers may be prohibited - could give advice inadverantly - or without accuracy ( as they have plenty of experience in this area ). This idea of auto enrolment is dysfunctional - designed by stupid people who have no interest in the real reason behind a pension scheme arrangement - the Gov't think that like tesco's" beef burgers " unidentifed horseyburgers will be galloping off the shelf . . . or at least cantering into the finish. Unlike Jamie Olivers 30 minutes or 15 minute meals - they do not do. . . . . what they say . . . . on the tin !

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Greg M

Apr 24, 2013 at 12:41

Just one point - can we stop this stupid distincion between 'employer' and 'employee' contributions. They are all in employee contributions as you can be sure that they will be funded through supressed wages. No company is ging to magically increase its overall payroll budget to accomodate genuine 'employer'' contribtuons.

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Ian Lees

Apr 24, 2013 at 13:03

Great news we could start up a business called " Shiela's wheels for auto . . . . .enrolment ", YOu couldnt make this up ? I hope Shiela hasnt thought of this forst or we may have to change to " Stealers Wheels ". It does look as if the " wheels " haft come offeth the Wagon on auto enrolment . . . I wonder how much standard life has paid out this time ? It was soem £ 35 M last time the Gov't changed the Rules on Pensions to accept " residential property ", we hired Lords Cricket Ground and had some 350 Solicitors and accountants - until the Gov't Ewe turn ( they were scottish ) . . and when Gordon Brown was asked in the agricultural areas around the Lino capital - "can you make a U turn ? " Gordon said " make a ewe turn . . . . . .I'll make its bleedin' eyes water ! "

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Mr Man

Apr 24, 2013 at 13:29

@ Hickky "To get pensions really moving in the workplace you must allow qualified advisers to earn a decent living informing, engaging and educating planholders, adding and increasing value according to the individual's needs".

This is what Steve Webb means by self -serving and clearly it hasn't changed.

Consumer champion Which also found evidence of adviser greed in a recent survey and what advisers are looking to charge-again self interest taking precedent.

Steve Web is giving you another undeserved chance, embrace...

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Philip Wise

Apr 24, 2013 at 14:11

He's sort of sweet in his naivety, that Steve Webb.

I am guessing he is including himself in the pensions industry which needs cleaning up.

After all, it is his "flat rate state pension" which isnt flat rate and his NEST which is one of the "lousy, high charging old schemes".

And of course, the government keeps increasing tax on pensions, the latest being the tax on advice introduced in the last week or so. Add to that the effect of government action on annuity rates (qe, increases in capital requirements and unisex rates), and I think we can work out that he isnt yet on the side of consumers.

Perhaps he should "name and shame" himself...

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j p

Apr 24, 2013 at 14:55

The comment about Pension or ISA is misguided on two fronts. Firstly pension and ISA is the starting point and secondly we still have over 50% of the population in DB schemes, who naturally will do ISAs as they already have a mechansim for pension saving. This is without mentioning the self-employed.

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Apr 24, 2013 at 15:22

Spot on Mr Man, greed and snouts in the trough are a real reason why engagement is not happening

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lee rawding

Apr 24, 2013 at 16:19

I agree there are some poor legacy contracts out there. It would be gesture of goodwill on the part of the providers if these were revisited.

On the other hand there are some hidden gems, guaranteed annuity rates and in some cases pot sizes that must be costing the providers a fortune so it's not all doom and gloom.

I hope AE works however I'd agree with some of the previous posters that the real challenge is yet to come ie when medium and small companies reach their staging dates.

It's in all our interests to see a thriving retirement savings culture begin to develop again. Politicos (and trolls) come and go but the challenge remains.

There's an element of truth in the allegations made by Mr Webb, there always is, that's what makes his argument so superficially attractive. On a broader point constantly bashing financial services in the name of 'rebalancing' the economy might not seem such a good idea in the light of the soon to be announced growth figures for the last period.

In addition I can't believe anyone is naive enough to think that the Which organisation isn't just as much a part of the money making machine as any other part of the financial services industry and has a rather murky agenda to boot in some cases.

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Apr 24, 2013 at 16:34

Same old story, lots of talking the talk, but no real attempt to walk the walk.

RDR has come about as a result of the industry at all levels over valuing the service they provide their customers. A result of which has been much bleating from adviser about being unable to service a large sections of the community.

So now in the eyes of this guy Webb there is an opportunity to clean up the pensions industry. I can guarantee this wont happen voluntarily. Like everything else in this industry we will have to drag the adivsers and everyone else involved screaming and shouting into the modern world.

The public do not get value from either advisers or providers. 3% initial and 1% ongoing is not uncommon for a service that is no where near that.

But as usual we will continue to get away with it as we have done for years, devising service propositions which amount to a annual rebalance and the odd fund switch.

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Ian Lees

Apr 24, 2013 at 17:15

Given that the Treasury are unable to find hundreds of thousands of Equitable Life policyholders ( after 20 Years ) according to the Daily Telegraph - it is unlikely that many people would have any confidence in the broken pensions industry. Auto enrolment is the result of dysfunctional ideas form a dysfunctional gov't who have no idea of the product they are forcing on employers - or the employees. The result already is Chaos ! If the gov't doesnt understand what they are introducing , what chance has anybody else.

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Apr 25, 2013 at 09:31

As he is after some transparency perhaps he could let us all know at what date the 1.8% initial charge will cease?

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George Kendall

Apr 25, 2013 at 10:46

Legislation is the biggest driver of mistrust and the biggest driver of why many advisers lean towards maximising ISA allowances rather than contributing to pensions for basic rate taxpayers. 120% GAD one day, 100% GAD the next, 120% again the next, age changes, lack of flexibility, caps on tax-relievable contributions etc.

With all the pension changes in the last decade, any adviser should be mindful of recommending it to their client and I'm convinced most do just to avoid pressure from the FCA.

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Mr Man

Apr 25, 2013 at 11:08

@ George Kendall. Spot on ! Pensions legislation has changed so much it is impossible to know what it is the consumer is actually investing in, how much they can get out and when etc etc. Maximising ISA allowances will likely take up most people's disposable income. UK pensions are a cumbersome planning tool with virtually no flexibility. Once invested monies are stuck and decimated by product charges and poor performance.

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Jonathan Kirby

Apr 25, 2013 at 11:41

@ George Kendall

Have been arranging Stakeholders for clients with nil initial or trail, 0.6% AMC and gross roll up of premiums for non-taxpayers.

Okay, money locked away until age 55, but ell me how an ISA can improve that?

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Apr 26, 2013 at 09:45

Personally I think that AE will do little more than bring false hope. It has been marketed as the saviour of the savings gap but I still dont see how this is delivering any outcomes? Its been brought in so heavy handedly that it doesnt even work as a means for encouraging people to get into the savings habit.

What happens after the employers are named and shamed? Are they forced to implement a newer, cheaper scheme? Is Mr Webb blowing hot air? If you are going to square up to someone at least hit them !!!

I feel very grouchy for a Friday !!

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Ian Lees

Apr 27, 2013 at 09:19

Auto Enrolment or Auto Encroachment ? The great pensions fiasco and for those who remeber Pension Simplification ! it is simpler now than ever, put money in pensions watch high charges poor investment retuns - and the moeny that is left will be used on the " infrastructure". Shoe horning employers and employees into auto enrolment - default funds may work for the few but I wonder how many Robbing Bank of Scotland employees signed up for it ? The reason they trust theie employer less than they trust the government ( which may change to Scottish Nationalist Perty - and where would their money go then ? ) Scotland would requre a new currency - and the revived and revitalised barter system currently available where you go to a wife swapping party and get a bag of spanners in return - may have to cease !

Why would any employer ( apart form a bank ) wish to contrinute to an employees pension scheem from their shareholders profits - to theri incompetent employee - who may wish to go to another employer anyway ( especially banks e.g Bank insolvency - employees sent to the black holes of the FSA and FOS -where thei negligence and genearal incompetence continues e.g John Folan Bank of England " Prudential regulation ", and passes the buck. It is a wonder that Webbs has been as successful as it has been ( a fine title for Mister Webb - a " has been ") Aviva employees decided against it - even after the dear old dragon Patheticus claime dhe was in with his low paid workers ( they might get a job at McDonalds - where the training required is similar ) . I suspect you could be better placed going down to your local nursery or market garden - theyve named a spud after Mr Webb . . . . " Webbs Winder " , apparently it likes sandy soil as it shakes and moves - has little roots . . . lots of Tatty Shaws - but provides small crops .. . . .

It is interesting the last pension changes eg residential property into Sipps. . Standard and Strife spent £ 3.5 M listening to the govt sales pitch . . . to discover it was a black pitch - which did not stack up . . . like tax payers money I wonder where it went ?

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