Articles - Auto-enrolment ; winners and losers


 By Henry Tapper
 The first ballot boxes are being collected, the first votes counted. It’s too early to call the winners but the exit polls tell us a fair bit about how auto-enrolment will impact the pension landscape in years to come.
 The “big five” ;- the schemes with more than 120,000 people, have already declared their line ups. Marks & Spencer is launching a new scheme in July (to avoid the Christmas rush) and testing through to the autumn when it stages with Sainsburys, Asda, Morrisons and Tesco . The starting gun goes off for them in October with a host of big employers to follow.
  
 So what do the early declarations tell us?
 Not one of the “big five” are using NEST, the Government‘s own pension, frequently described on these pages as a £300m white elephant. NESTcorp will be bitterly disappointed about this. They badly need some trophy clients and to date I’ve only heard they’ve signed up RWE Energy – and they aren’t even British! There’s still time for NEST to come back but they are going to need to play without dragging round the ball and chain of the 1.8% contribution charge and the restrictions imposed on them by the ABI (apparently to give the insurers a chance!).
 The insurers have taken their chance; they should be more than happy with their performance, having secured three of the five runners in their stable. If the ABI was Will.i.am, it would be smugly wriggling its eyebrows! Asda and Sainsburys will be running with their group personal pensions while M & S has set up shop with Legal and General using a master trust (the same structure as NEST uses).
 
 That leaves the two wild cards, Tesco which is enrolling into a career average plan, and Morrisons, which has announced they are setting up a new “cash balance” plan. This can either be seen as a watered down defined benefit scheme or upgraded DC plan depending on whether you see the glass is half full or empty.
  
 Anything we didn’t know?
 They certainly are a surprise to some. NEST’s lack of success is a worry. The success of the insurance companies is predictable (to those in the know) but bad news for the DWP who can now see just what a stroke the ABI pulled on them. Bad news too for the general public who stumped up the money for NEST and should be asking itself just how much more money they can be expected to pump into it.
  
 Tesco doesn’t seem to be getting too much credit from the DB aficionados who have been perturbed by its attempts to push back retirement ages as part of the new deal.
  
 Morrisons has yet to show their hand but seem to have played a canny waiting game. They are getting all the right noises from Government over their risk-sharing cash-balance solution they are calling “Pensions 2012″.
 Sainsbury and Asda are the “control” in the pack, playing auto-enrolment with the straight bat and creating few waves. There’s nothing wrong with boring, so long as it works!
  
 The joker in the pack is Marks & Sparks which has decided to tear up the rule books and be contrarian. Not for them the nudge nudge wink approach that boils the frog by slowly increasing the contribution rate over time.
 M & S are enrolling everyone from day one at full personal expense. The idea is that the frogs will jump and jump in numbers polarizing its workforce between the pensioned and the rest.
  
 The “rest” fall into two camps, trophy housewives working for pin money who will be relying on their hubbies and the till workers on the breadline who M &S clearly consider are the DWP’s concern, not theirs.
 M & S are even rumoured to be pre-populating the opt-out forms to make ”not being in a pension” as easy as possible for recalcitrant frogs.
  
 It’s hard not to admire M & S’ approach. Politically correct it ain’t but they are thorough. They have taken advice at every step and have parked the bus outside DWP Towers . Half the auto-enrolment rulebook appears to have been written for them.
  
 Julie Parker-Welch , their feisty Auto-Enrolmnent supremo, is the nearest thing Britain 2012 has to a pension olympian and she’s carrying all before her.
  
 Pre-season
 This is the exit poll stuff, it’s the team news from the changing room, it’s the pre-season friendly.
 The real game’s about whether the public’s going to take to being auto-enrolled. Will public opinion swing back in favour of pensions or will the pension industry will continue to languish in the “derelict’s car-pound” with the estate agents and mortgage salesmen?
  
 From an operational point of view- will the stress and strain of opt-outs , refunds and the constant cycle of enrolment and re-enrolment do payroll’s head in? Last week , KPMG a leading adviser on auto-enrolment, admitted they’d failed to pay a single employee on time in April. If that’s what it’s like in peacetime-watch out when the hostilities break out!
  
 So far most pension people have avoided auto enrolment as tomorrow’s problem, promoted it as a retail advisory opportunity (which it isn’t) or rubbished it as an overly complex distraction for pension managers who should instead be paying attention to legacy DB.
  
 Frankly, the time horizons for the majority of SMEs are at best twelve months and in a fast moving market, the decisions taken by small employers in 2018, won’t be directly affected by the likes of M & S and Asda.
 Where the interest lies is in what happens in 2013 and 2014 when the bulk of large and medium large employers throw open their gates to the great pension unwashed. The winners will surely be the firms that understand and deal with the payroll issues and the losers those who leave their preperations to lastminute.com
  
 For what it’s worth I’m excited
 I am a fan of auto-enrolment, I’m a fan of good DC, good cash balance and good salary related schemes.
 I’m a fan of NEST and hope that Steve Webb will bring forward the 2017 review to give it a chance (and us taxpayers a chance to get our sunk costs back).
  
 I’m a fan of the big five’s comittment to auto-enrolment and I’m fascinated by the diversity of their approaches.
 I’m also pleased that some of pension’s dirtiest washing is getting an airing. Those who read this blog regularly will know how I feel about at retirement advice.
  
 The Daily Mail is running its headline today on DC pensions (the scandal of enhanced annuity take up -or the lack of it). This is real news and until people wake up and demand better support at retirement, the current chronic underprovision of at retirement advice will continue.
  
 Let’s say it again- we can’t have 500,000 people locking into current annuity rates this year without profound consequences in years to come. That a substantial proportion of these will not take advantage of the open market option, let alone enhanced annuities – is scandalous. The annuitants of 2009-13 are the unwitting losers from auto-enrolment, failed by a government with its eye off the ball.
  
 Once more with feeling
  
 good pensions, properly used make for happy retirements but poor pensions are a waste of time and money and make people sick.
  
 We will get there and auto-enrolment will get us much of the way, but it’s going to take an awful lot of heartache before we get to 2018 - when it’s all systems go.
  
 Enjoy this article? Read more from Henry Tapper on his blog http://henrytapper.com/

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