HC1494 Work & Pensions CommitteeWritten evidence submitted by The Pensions Advisory Service

Our Background

1. The Pensions Advisory Service (TPAS) provides information and guidance to members of the public on general pension matters. We also help to resolve disputes and complaints about private pension arrangements (company pensions, personal pensions and stakeholder pensions). Our service is free and is sustained by a nationwide network of over 400 volunteer advisers who are supported and augmented by 40 technical and administrative staff based in our London office. All our advisers are pensions professionals with many years’ experience in the pensions industry, and all act in accordance with The Pensions Advisory Service Code of Practice.

2. The Pensions Advisory Service is an independent organisation that is funded by Grant-in-Aid from the Department for Work and Pensions. The grant comes from a levy on all occupational and personal pension plans. Our annual grant is £3.5 million. The estimated value of the services provided by our volunteers is £9.5 million. During our 2010–11 financial year, we handled over 63,000 telephone calls and 18,000 questions by email or post. This is an increase of 12% on last year’s figures. We hosted 334 workplace seminars attended by over 6,000 people. We saw over 1,000 people at exhibitions and dealt with 6,021 complaints or disputes about pension schemes referred to our service for resolution. Our website received just over two million visits, an increase of 57% on 2010–11.

About Our Submission

3. We have limited our submission to the Committee to the areas where we have had direct experience. These are:

DWP’s communications strategy.

Likely impact of auto-enrolment on small and micro-businesses.

Possible measures to reduce the proliferation of small pots.

A Summary of the Key Points we have Raised

4. We are supportive of the direction the Department’s communication strategy and regard it as one of the critical elements in achieving a successful implementation.

5. We would be concerned if the Department’s helpline is not given sufficient prominence to enable those without internet access, or who prefer not to use the internet, to seek help.

6. We believe that the extensive technical knowledge and experience of our staff and volunteers means that we are well placed to provide information and guidance on the more complex aspects of the legislation to individuals. We are already dealing with questions from the public about automatic enrolment and have a planner on our website. We are working with the Department and other stakeholders to ensure redirections to our service are dealt with as seamlessly as possible.

7. We share the concerns of the British Chamber of Commerce that the complexity of the legislation means there is a danger that small employers are unable to comply without help. Complementary to the support being put in place by the Pensions Regulator, we believe that we are well placed to provide additional support to small and medium sized employers with understanding any complexities which might arise with their implementation of automatic enrolment.

The Department of Work and Pensions Communications Strategy

8. With other key stakeholders, the Department has included us in discussions about its work in building a communications strategy for providing information to individuals, highlighting to small and medium sized employers the importance of offering pensions to their workers, providing the context for change and providing information that employers can give to their workers. This work is highly important and critical to the successful implementation of automatic enrolment; we therefore hope that it is adequately resourced to ensure its successful delivery. We support the direction taken in this strategy and will continue to contribute to its development where it is appropriate for us to do so.

9. In particular, we are supportive of the work done on developing written materials and the customer journey using research commissioned by the Department using consumer focus groups.

10. We welcome and support the development of the Department’s Pensions Language Guide. We have used the experience gained from providing information and guidance to the public over many years and from drafting communications on private pensions to feed into the language guide. We are pleased to note that all of our recommendations have been adopted in this area.

11. In addition, we are providing detailed comments to the Department on its booklet and template letters with statutory information for employers to give to their employees. We are of the opinion that providing template letters and other information will be particularly helpful to small and medium sized employers who may not have the resources to develop their own material; it will help them save costs and assist them in complying with the regulations.

12. We believe that the extensive technical knowledge and experience of our staff means that we are well placed to provide free impartial and independent information and guidance via our national telephone helpline, written enquiries service and workplace seminars. We are already dealing with questions from the public about automatic enrolment and have a planner on our website. We are currently developing new and updated website material on the subject. We have also held seminars on pension reform for some groups of HR professionals and sign-posted them to the Pensions Regulator for more information about automatic enrolment.

13. We are working closely with the Department, the Pensions Regulator and the Money Advice Service to establish the nature of the enquiries that we would expect to be directed to our service and to ensure that any redirections are dealt with as seamlessly as possibly. Plans are that the Department will deal with basic questions needing generic information, the Money Advice Service will deal with questions about budgeting and financial planning, and we will take questions and provide information about the more complex aspects of pensions. We are working with the Department and the Money Advice Service to refine the parameters of what we would consider to be complex queries. These might be for example where an individual has multiple jobs, already has some alternative pension provision in place, or there are overseas aspects to their employment (for example, working offshore for part of the year).

14. We note the Department’s push towards encouraging individuals to use the Direct.Gov website to source general information about automatic enrolment. And while we would agree that this is a good strategy for managing the expected large numbers of people who will be seeking information, we would be concerned if the Department’s telephone service was not sufficiently prominent in the communication material to enable those individuals without access to the internet, or who prefer not to use the internet, to seek help. Our experience is that many members of the public want reassurance that their understanding of written material is correct, and some will be daunted even by the prospect of having to read letters or booklets on the subject of pensions. Our experience, and research by other organisations, shows that the public find reassurance in having a telephone number available to contact someone should they need to, even if they actually choose not to do so.

15. We are working with the Department to quantify the expected volumes of queries that will come to our organisation through referrals from the Department, re-directed to us from other organisations and those which are likely to come direct to us. Our concern is that we are properly funded and resourced to support people seeking information, thereby contributing to the successful implementation of this policy.

16. It is absolutely essential that the Department’s media campaign is sufficiently comprehensive to help people understand how much they need to save to provide the income they need in retirement to maintain a decent standard of living. We are concerned that individuals may have unrealistic expectations of the retirement income they might get as a result of having been automatically enrolled into a workplace pension. It is therefore important that sufficient steps are taken to manage these expectations, and expectations of possible redress, should an individual’s outturn retirement income be significantly less than they anticipated.

17. We would suggest that many people will consider their retirement income needs have been ‘taken care of’ once they have been automatically enrolled, even though in fact the amount likely to be provided in this way could be insufficient. We are also concerned that most people who will be automatically enrolled into workplace pensions may not fully appreciate the consequences of any decision to opt-out. In addition, unless efforts are made to support people through their decision making process throughout their participation, poor levels of consumer understanding about investment risks, volatility and fluctuations in annuity rates could lead to suspicion and disaffection. This could potentially lead to lower levels of participation rather than achieving the policy intention of significantly higher levels of personal provision for retirement income. Given our long, trusted and successful track record in helping people understand all types of pension issues and planning their retirement income, we are well placed to continue to provide this support, providing we are appropriately resourced.

Likely Impact of the Legislation on Small and Micro-businesses

18. We welcome the inter-active materials produced by the Pensions Regulator to help employers understand the complexity of the legislation and think it is well written and presented. However, we believe the amount of detail firms need to understand in order to implement the requirements is both daunting and could potentially cause smaller employers to fall foul of the regulations.

19. Whilst we understand the policy intention behind the legislation, we believe it is too complex for small employers to understand without individual help. In this respect we agree with the concern expressed by the British Chamber of Commerce that there is a real danger firms will be unable, rather than unwilling, to comply. On the positive side, as the staging dates for small employers are much later in the process, it should allow key stakeholders to make any necessary adjustments and provide additional support if this needed.

20. In 2001, when the requirement was introduced for employers with five or more relevant employees to designate a stakeholder pension scheme, we set up a special helpline; we received 27,700 calls in the first year. Nearly 10 years on, our helpline still receives around 500 calls a year from employers asking us to guide them through the stakeholder requirements. These requirements are much simpler than employers’ automatic enrolment duties. We are of the opinion that this demonstrates the need for additional support to be put in place for smaller employers and we support the work which is already in hand by the Pensions Regulator to do this. But this also demonstrates the potential demand that could be put on our service and the need to ensure that it is properly resourced.

21. There are complexities in dealing with agency workers and particularly answering the question “who is the ‘employer’ for the purposes of auto-enrolment”; anecdotal evidence from small employers who contact our service suggests that they particularly value the flexibility that employing temporary and other agency workers gives them.

22. Another area of complexity is the different categories of workers that firms will need to understand and identify. These are:

“Jobholders” who must be automatically enrolled into a qualifying scheme;

“Jobholders” who do not qualify for automatic enrolment but who have a right to opt-into a qualifying scheme; and

“Workers” without qualifying earnings who have the right to join a registered pension scheme (which does not have to be a qualifying scheme).

23. By way of further example, we recently received an email from an employer stating that:

“To understand the ‘basics’ you would need to understand what is meant by (and the interaction between):

eligible workers;

qualifying workplace pension arrangement/scheme;

defined contribution scheme;

qualifying pensionable earnings;

defined benefit scheme;

contracting out; and

test scheme standard”.

24. Even within our own staff, who are experienced pension professionals, there have been discussions concerning our different interpretations of some parts of the legislation. For example, whether or not an existing scheme that stipulates a minimum level of employee contributions in its rules as a condition of membership can continue to apply that minimum to new employees who are automatically enrolled for the first time, even if it is more than the statutory minimum level of employee contributions.

25. In recognition of these complexities, we are aware that in addition to its website tools, the Pensions Regulator is developing its call centre aimed at providing support for employers to assist them through the process and achieve compliance with the regulations without the need to become over involved in jargon. We will continue to work closely with the Pensions Regulator so that together we can provide complementary and seamless support, particularly for small and medium sized employers.

Possible Measures to Reduce the Proliferation of Small Pots

26. We believe there should not be any differences in the treatment of occupational pension schemes and other types of pension schemes for the purposes of trivial commutation. The introduction of a separate limit for occupational pension schemes appears to go against the original policy intention of pensions tax simplification under the Finance Act 2004, which was that the tax treatment of all registered pension schemes should be the same. We believe the maximum size of the pension pot that can be commuted for cash on grounds of triviality and without reference to the value of other registered pension scheme benefits should be set at the same level at which research demonstrates that providers are willing to provide annuities.

27. Anecdotal evidence from those individuals who contact our service about small pots suggests that people find the different rules for occupation and personal pensions bewildering. This applies to both trivial commutation and short service refunds. This is particularly so where their employer has set up a group personal pension (GPP) for staff, because the individual may not understand the difference between a GPP and an occupational pension scheme. As far as they are concerned a GPP is a company pension scheme. We believe that there should be no regulatory differences between the different types of plans in these areas.

Summary

28. We will continue to work with the Department and other stakeholders to ensure employers and members understand the changes and their responsibilities, and to discuss the role we expect to play in helping the public.

Further details of our work can be found in our 2010–2011 Annual Review:
http://www.pensionsadvisoryservice.org.uk/publications/company-documents--reports

14 October 2011