A Budget intended to help drive economic growth as we recover from Coronavirus also brought some welcome changes for the pensions world, says a Quantum Advisory expert.

Pension tax top-ups for low earners

The Government will develop a solution to the ‘net pay anomaly’ where some low earners can miss out on tax relief if they pay pension contributions through a ‘Net Pay’ arrangement.  From 2025/26 a system will be put in place that provides top-ups to affected individuals to broadly give the same outcome as if they paid contributions through a ‘Relief at Source’ arrangement.

The system will apply to pension contributions made from 2024/25 onwards.  The Government calculates the average benefit for affected individuals to be £53 per year.

Simon Hubbard, a Senior Consultant and Actuary at Quantum Advisory, said: “Industry commentators have been asking the Government for years now to resolve the unfair tax treatment of pension contributions by low-paid workers.  This change will be welcomed by many, though it’s disappointing that it will not apply until April 2024. However, the bigger question of increasing the auto enrolment minimum contribution amounts has been avoided for a further year.”

Changes to the charge cap on defined contribution (DC) pensions

The Government will consult on how the 0.75% pa cap on DC pension scheme charges can be adapted to allow for well-designed investment performance fees.  The cap currently prevents the default investment strategy from using funds with a performance-related fee because it could exceed the cap if performance is strong.

THE pension industry is rallying together for the UK’s first ever National Pension Tracing Day which aims to identify owners of more than 1.6million lost or forgotten pension pots worth approximately £19.4billion.

National Pension Tracing Day takes place on 31 October 2021 to coincide with the clocks going back and encourages people to utilise the extra hour to search for pensions they might not know exist. The Department for Work and Pensions (DWP) predicts there could be up to 50million lost pensions by 2050 if nothing is done to try and reunite owners with their retirement funds.

Partner and Actuary at Quantum Advisory, Stuart Price, commends the new initiative. Stuart said: “So many people change job without notifying their pension providers and the pension is forgotten about.

“It’s estimated that nearly £20billion is lying idle in pension pots that no-one knows about which is a staggering amount of money sat waiting to be claimed. People should use this day to visit the dedicated online resource centre run by the government, which is so easy to use and get the ball rolling”

National Pension Tracing Day was founded by Punter Southall Aspire, with backing from Scottish Widows, Aegon, Legal & General and Standard Life. People are encouraged to take a moment on the day the clocks go back to initiate tracing lost pensions. The government runs a Pension Tracing Website with helpful information about the process. Visit https://www.gov.uk/find-pension-contact-details.

For details about pensions and employee benefits, visit: www.quantumadvisory.co.uk.

Mounting regulatory requirements for DB pension schemes are taking their toll on many skilled professional trustees and even driving them out of their roles. But if it’s too much for the professional trustees, what does this mean for lay trustees of small schemes?

New research from Charles Stanley Fiduciary Management amongst professional trustees of UK defined benefit pension schemes found that two-thirds (62%) are finding regulations too burdensome and overly complex and so are planning to step down from their role within the next three years – many far sooner.

The survey revealed that 44% said they didn’t have the right knowledge for the job, 41% said the reporting requirements were too onerous and 24% said the role was taking up too much time.

Clearly a reduction of professional trustees available in the market could have a damaging effect on the potential stability and success of schemes, but this report also highlights another worry.

According to the Pensions Regulator, the number of pure defined benefit schemes with professional trustees on their boards stood at 1,538 out of 4,797 in 2020/21, which leaves over 3,200 schemes run by non-professionals, often a scheme member, finance director or company owner.  Most professional trustees work for the largest schemes, and so it is the lay trustees that run the smaller end of the market.

Whilst this group of amazing people do a great job, if professional trustees of large schemes are struggling, the key question becomes how are trustees of smaller schemes coping?

Some of the trustees of smaller pension schemes we speak to have been trustees for 20 years, some have worked for the company running the scheme – they are emotionally invested in their schemes and don’t want to walk away, but clearly now is the time to seek a new type of support as an option for their schemes.

This is where Stoneport can help. The Stoneport Pension Scheme was set up last year to consolidate small schemes and tackle the problems faced by smaller schemes head on.

Being part of Stoneport means that governance headaches and regulatory pressures are completely removed from trustees. However, that doesn’t mean that trustees no longer have to be involved in their schemes. Through the Stoneport Alliance, scheme representatives retain votes on all key decisions.

In addition to this, Stoneport’s unique, purpose-built structure enables it to achieve a significantly higher level of cost savings and improved member benefit security, by bringing different employers’ schemes together to run as it was a much larger and stronger scheme.

With Stoneport we are Stronger Together.

For more information contact joining@stoneport.com

This Pensions Awareness Day, Stoneport is urging employers and trustees of Defined Benefit Pensions to rise to the challenge of educating and informing members about their schemes to drive better engagement.

Richard Jones, Managing Director, Stoneport says, “DB pension schemes were set up with a simple aim – to provide their members with an income in retirement for life – but in recent years they have become complex as the regulatory environment has shifted, and the economic and demographic landscape has evolved. The task employers and trustees face to educate and inform members has never been more challenging. Increasing life expectancy means that members rely on their DB pensions for longer, whilst low interest rates make DB pensions much more valuable. And, while pension freedoms provide increased flexibility, they have opened the door to pension scams.”

“The industry is however, responding well. By embracing technology and engaging with communications specialists, the way schemes engage with their members is being transformed for the better. According to research from Buck, member engagement rates increased to between 30% and 40% when members were provided with online, real-time access to their scheme benefits, compared to the industry average engagement rate of around 10%.”

Stoneport highlights that some schemes now provide an array of helpful services to their members. Some schemes have their own websites, providing members with:

• Access to information on scheme benefits and the options they have about when and what form they can take their benefits in.
• Important scheme documents like the scheme’s accounts, statement of investment principles and summary funding statement.
• Scheme booklets and member guides, along with references to external sources of information and guidance.
• Secure portals which provide online access to personal information and allow updates to be made – for example, amending nominations for death benefits.

Stoneport says leaders in Aerospace, Defence and Security, Leonardo S.p.A is a shining example of how much can be done with member engagement, providing three separate websites – one for its multi-award-winning DC offering, FuturePlanner, and one for each of its £1bn plus Electronics and Helicopters DB schemes. The DB sites even have an online modeller, allowing members to estimate their future pension at retirement, and to see the impact of retiring at different ages and taking different amounts of cash.

Large schemes like those operated by Leonardo can do this because they have the scale and resources to provide these things to their members in a cost-effective way. Unfortunately, that is not true of all. Whilst employers and trustees all want to do the best they can for their members, cost pressures often determine what is delivered in practice.

Currently around 80% of private sector DB schemes have fewer than 1,000 members and lack the scale to ever run efficiently and effectively – just meeting the ever-increasing compliance burden can lead to running costs exceeding £1,000 per member every year, compared to under £200 for the largest schemes.

Jones says, “As a result of cost pressures, members of many smaller DB schemes tend to receive just one communication a year. The only way for members to find out more or to engage with their benefits, is by writing to the scheme’s administrator and they want and deserve better support.”

A recent survey from Hymans Robertson found that 47 per cent of respondents would welcome more support on what options are available to them, with just 21 per cent believing that they already have an adequate level of support.

He adds, “With access to the right information and support, members will be better equipped to guard against pension scams and to make sound financial decisions for themselves. Stoneport aims to bring together 100 smaller DB schemes and then to leverage its scale and use technology to provide the ‘best in class’ member experience of a large DB scheme like one of Leonardo’s and radically reduce the running costs.”

About Stoneport

Stoneport is a consolidation vehicle for occupational defined benefit pension schemes in the UK with fewer than 1,000 members. It was conceived and developed by Punter Southall and will be managed by Stoneport Pensions Management Limited, a wholly owned subsidiary of Punter Southall. Barnett Waddingham will provide administration services plus the actuarial and investment advisory services required to operate Stoneport. Stoneport will be regulated by the Pensions Regulator, just like the small schemes it provides a solution for.

About Punter Southall

Punter Southall has been developing new ways to transform people’s financial future, since 1988. We help our clients to discover and seize the right opportunities. By listening to them and understanding their needs, we change and adapt our portfolio of companies and services to help deliver their goals. We work with pension schemes, employers, insurers, charities, and private clients to provide expertise in pensions and investments, wealth management, workplace savings, health and protection, and financial data.