The auto-enrolment timeline is now halfway through staging – as the PPI’s FutureBook2 tells us. While coverage from workplace pensions is spreading, it is also thinning, and average contributions are lower than ever before, warns Henry Tapper, Founder of Pension PlayPen and Director of First Actuarial.
With things changing so fast in UK business today, there are two worries;
- that people will get used to the new normal of 1% employee contributions as “their pension”
- that when the government turns the heat up on contributions, we will see opt-out rates leap-frog
The heat is on
The frog reference is apt here, as the nudge theory behind auto-enrolment is used in cooking for boiling a live frog. Apparently, a frog in tepid water will fall asleep and not wake up if the heat of the water gently increases. However, frogs will resist being thrown into boiling water by jumping out of the pan. People contributing to pensions are thought to be like frogs – they need to have the heat turned up gradually.
At the moment we are all drawing breath, hoping that opt-out rates won’t exceed the 17% reported by the DWP for employers with less than 30 staff. We are also hoping that, with the help of accountants’ payroll bureaux and the odd IFA, small employers will follow the Pension Regulator’s Duty Checker and stay on the right side of the law.
While we are drawing breath, we are already thinking about 2018 and 2019 when contributions made by those auto-enrolled will jump to 2 and then 4% of band earnings.
There is a lot of concern that the people who took the decisions on the auto-enrolment timeline – Steve Webb, Iain Duncan Smith – and ultimately Osborne and Cameron – are no-longer in office. To Hammond and May, auto-enrolment is someone else’s idea. Do they want to be in office when the pot boils over and the frogs have palpitations?
Cruel to be kind
The concern centres on time; pension pots grow based on the amount paid in and the timing of those payments. Delaying payments by pushing back the auto-enrolment may not give those payments sufficient time to grow to something useful.
Whilst no one wants to be cruel, we do want to be kind. Governments are no different. At some point this, or a subsequent Government, has to be cruel to be kind. Although those people who know about pensions and care about outcomes want contributions to increase as soon as possible, there is little incentive to annoy the population “on our watch”.
Pushing back the clock
So while we are drawing breath, plans are being hatched to push back the auto-enrolment contribution increases into the next decade. Not only will this mean that AE is delivered 15 years after its original announcement in 2005, it means that a generation of savers will have missed out on contributions.
What is more, there are literally millions of British workers who are missing out on any kind of pension incentive at all, never being auto-enrolled.
That’s why I’m excited that the Government is commissioning a study into UK working practises – about time too! I’m really happy that Matthew Taylor, who heads the Royal Society of the Arts (of which I’m proud to be a member), will head the study.
The study will not get much air-time because of the broo-hah-hah of Brexit but I am hoping it will address the new dynamics of what is called the “gig-economy”.
The reality of the “gig” economy
The way people are working is changing and the way bosses are engaging with those who do work for them is likely to change as fast.
You’d have thought that this would be an issue for the Labour party, but the unions, who should be shouting about this, are too busy defending their subs to reach out to those who have no organisation, no union and little protection.
We’re talking about people who work through UBER, the delivery riders of Deliveroo and the messengers of Hermes. I suspect it’s Hermes that has tipped May into action. In September, Frank Field sent her a report which you can find on his website http://www.frankfield.co.uk as a pdf called “Wild West Workplace”. It details the worst exploitative practices I’ve read about in Britain since I had to read Charles Dickens. The Wild West Workplace at Hermes makes Sports Direct look like a management consultancy.
In the absence of the traditional workers’ representatives, it is left to Field and May to take action. I bumped into Frank Field a couple of weeks ago as he was crossing Whitehall (I was coming out of the Red Lion). I wanted to talk with him about something else but he couldn’t help himself, telling me how pleased and proud he was that he could get a sympathetic ear from the Prime Minister.
If we are to take May seriously when she claims to be on the side of those “just getting by”, I suppose the suspension of disbelief starts here.
The man in the mirror
I am an employer, though I have a most odd group of workers! For the past four years I have paid some contractors in India without whom PensionPlayPen.com would be nothing. I do not pay them directly, I pay them through a number of intermediaries. I fear that what I pay for their services is nothing like what they get but nobody wants to talk. This worries me.
I pay my head of digital, but I pay his company which employs him and him alone. I’m not happy about this either, I want to move him onto my payroll and we will do as soon as his company year ends. Andy moved out to Manhattan recently and works for us from the Big Apple. It is tricky in terms of time differences and I miss having a beer with him but heh!
Finally, I pay my web-chatters. These guys compete for work from Pension PlayPen on their phones and get paid by the chat. I have no idea whether this is ethical or not but students love it as they can earn while they learn. I love it as I get great customer feedback scores. But this really is zero hours stuff and as with my friends in Mumbai.
The rest of the people who work for the Pension Playpen don’t draw a wage. Some,like our financial controller, submit invoices when they need to and some just keep the show on the road. Their reward being in whatever price our shares are worth.
We are not alone. There is an army of small businesses where no-one is getting paid in a conventional way, where concepts like the minimum wage are abstract notions and where trust is paramount. If we want things like the knowledge economy, we have to let people work together like this – this is how capitalism does things.
While this may be of little consequence to the politicians past, it will be of considerable concern to the Treasury, the Government Actuary and the DWP in the following decades. That’s because if we cannot increase private savings rates, we will have to meet the demand for subsistence retirement incomes on a pay as you go basis.
For “generation rent”, those people who’ve entered the workforce over the past fifteen years, that means poor pensions and higher taxes and national insurance to pay for everybody else.
Which calls for an even sharper intake of breath.
Henry Tapper – Biography
Henry is a commentator on pensions. He runs Pension PlayPen which provides advisers with outsourced pension reviews for auto-enrolment; he is strategy director for First Actuarial, which focuses on small and medium sized occupational schemes. For the first 15 years of his career he was an IFA, before becoming head of sales at Eagle Star/Zurich corporate pensions. If you haven’t come across him on social media, you don’t use social media.
Twitter – @Henryhtapper