The Government's pension reform

Written evidence submitted by VocaLink

1. VocaLink

1.1 VocaLink is pleased to make a short submission on the government’s planned pensions reforms. This submission focuses on an aspect of the government’s proposals in which VocaLink has particular and highly relevant expertise.

1.2 Having pioneered electronic payments for over four decades, many of the world’s top banks and their customers, including the UK Government, rely on VocaLink to meet their transaction needs. Our platforms process over 90 million transactions on a peak day, including 98% of benefit payments, and connect the world’s busiest ATM network of over 60,000 ATMs.

1.3 We provide the central infrastructure for Bacs and the UK Faster Payments service and process payments throughout the Single Euro Payments Area (SEPA). Our services operate on ‘never fail’ technology which ensures total reliability and availability, 24 hours a day. 

1.4 VocaLink would like to respond to the third of the areas identified in the Committee’s Call for Evidence: the plans for auto-enrolment into workplace pension schemes and the establishment of the National Employment Savings Trust (NEST).

2. Auto-enrolment in NEST

2.1 Following the review of personal account pensions and auto-enrolment initiated by the new government and published on 27 October 2010, DWP took the decision to proceed with auto-enrolment and with NEST as the mechanism to deliver this. The review team appeared to share some of business’s concerns about the practicability of the proposed timetable for introducing auto-enrolment but nevertheless accepted that the programme should continue broadly as agreed. It is difficult to make a judgment on whether the timetable will be met until NEST publishes further details of the administrative arrangements, expected shortly. Nevertheless, it would be prudent to look at ways of simplifying the process for introducing NEST as far as possible. This is especially so given the review’s recommendation not to exclude micro employers. A disproportionate amount of regulatory and compliance time is likely to be spent in ensuring that micro employers do administer the scheme appropriately, so time saved elsewhere will be at a premium.

2.2 Throughout the lifetime of NEST and its predecessor PADA, VocaLink has maintained that the administration of the personal account pension scheme should be designed so as to:

· Keep the compliance costs and administrative burdens on business as low as possible

· Keep the cost to the taxpayer at a time of severe public expenditure restraint as low as possible

· Ensure all employees receive maximum value, as a result of their pension contributions being paid into their personal account at the same time as they receive their salary

· Be simple to implement, ensuring that the start date of 2012 can be met, and the maximum number of employers can be introduced to the scheme as quickly as possible.

3. VocaLink (Bacs) and NEST

VocaLink believes that the existing UK payments infrastructure, administered by Bacs and operated by VocaLink, provides a unique opportunity to link employers to Personal Account Pensions in a low cost, low risk way, with the minimum of compliance demands on business.

This is because Bacs is already the means by which more than 95% of salaries in the UK are paid. Bacs has been operating for over 40 years and currently handles over 90m transactions on a peak day. Moreover, more than 80,000 organisations are already direct participants in Bacs ie they are registered to make automated credit transfers (including salaries and pensions) and/or to collect Direct Debits. Many more companies are indirect participants in Bacs through banks, payroll bureaux or accountancy firms. All together, VocaLink estimates that more than 90% of UK companies already participate in Bacs. In addition, almost all UK bank accounts can be accessed via Bacs.

Bacs also comprises messaging services, which enables information and instructions about changes to accounts or payment details to be transmitted by UK companies into new schemes such as Personal Accounts.

Bacs Direct Debit and Direct Credits could meet the requirements for collecting contributions to Personal Accounts without any modification whilst the messaging service and supporting software would only require minimal modification.

Finally, now that the government has announced its intention of basing PAYE on Real-Time Information (RTI), potential synergies can be explored between employers’ obligations to provide real-time PAYE information through the infrastructure that supports the Bacs system and their duty to provide an auto-enrolled pension account to employees. This would align the collection of information from employers for NEST with the collection of accurate real-time information on earnings (RTI) for HMRC and DWP.

4. Conclusions

VocaLink strongly supports the government’s intention of ensuring that those on modest incomes who may traditionally not have saved for a pension should be enabled to do so. VocaLink also believes that in order to reduce administrative complexity and costs, for both government and employers, DWP and NEST should look carefully at reusing existing infrastructure rather than reinventing the wheel. In particular, the option of employers making use of the Bacs infrastructure, which is already used for the vast majority of salary payments and will shortly be used to collect real-time PAYE information, should be carefully considered.

February 2011