HC1494 Work & Pensions CommitteeSupplementary written evidence submitted by The Pensions Advisory Service
Thank you for the opportunity to give oral evidence to the Committee at the House of Commons on 2 November 2011.
There are a number of additional points we had hoped to raise during our evidence, but there was insufficient time to do so. We would like to take this opportunity to put those points to the Committee now.
A Summary of the Main Points we have Raised in this Letter
1. We believe early access to pension funds should be considered as a way of encouraging young people to save into a pension.
2. We are already providing some face to face support to small and medium sized employers. Taking stands at exhibitions is one way where we can provide face to face information and guidance to employers in a cost effective manner. However, we would need the funding and resources to fill this gap.
3. We aspire to continue the work we are already doing, providing face to face information and guidance to individuals facing complex pension decisions.
4. We would not want regulatory pressure on pension plan charges to be at the expense of quality administration.
Early Access to Pension Funds
5. Whilst we understand the Government’s reasons for not changing the legislation to allow early access to pension funds at the present time, we would be supportive of any measures taken by the Government to allow early access to pension funds in prescribed circumstances in future. We believe this is likely to lead to more people wanting to save into a pension, based on the anecdotal evidence gathered from talking to young people in the workplace about saving for retirement. The two main reasons young people give us for not saving into a pension are lack of affordability and not wanting all their money to be tied up until retirement, particularly whilst saving for a first home. We believe early access should be considered in cases of financial hardship and for the purchase of a first home.
6. By choosing to remain in workplace pension saving, workers will benefit from their employer’s contribution, tax relief and fund growth, even if some of their funds are accessed early.
7. Should an individual be allowed to take their tax free cash lump sum early, the remainder of that fund could be segregated and further cash withdrawals could be prevented. This would go some way to mitigating the loss of income caused by taking part of the funds out early. The individual could be permitted to take a tax free cash lump sum from any new funds saved after that date, in the usual way.
Providing Face to Face Support for Small, Micro and Medium Sized Employers
8. During our oral evidence, the Committee asked how we thought the “gap” could be filled to provide small and medium sized employers with help, information and guidance about their automatic enrolment duties. We are already doing some work in this area. We have held some seminars for the HR representatives of such companies, where we have talked to them about pension reform generally, including their automatic enrolment duties, and directed them to the Pensions Regulator for further information. We have taken stands at a number of HMRC road shows for small employers, where we have spoken face to face to a number of small employers about pension reform.
9. Our experience at these events suggests that many employers, particularly small and micro employers who do not have HR resources, will want face to face information. This is something we could deliver by working with HMRC, the Pensions Regulator and other groups such as the Federation of Small Businesses to arrange seminars for groups of employers to talk them through the reforms and answer individual questions. Taking stands at exhibitions for trade associations and other such groups is one way where we can talk face to face to large numbers of employers in a cost effective manner. Although our priority remains giving help to scheme members, our constitutional documents have already been changed to enable us to give information and guidance to employers, and we do have the in-house technical expertise to do this. However, we would need the funding and resources to take this forward.
10. In addition to the help and support employers need when their duties first start, they will need on-going support if they are not to fall foul of identifying when the circumstances when existing workers fall into catchment.
Providing Face to Face Information and Guidance to Employees Facing Complex Pension Decisions
11. We have also taken stands at events held by hotels for their staff, where many of the staff are low paid, part-time workers, ethnic minority groups and women—the sorts of people who are most likely to have complex decisions to make about whether or not to opt-out of workplace pension saving. We have been able to talk to high volumes of people about wide ranging pension issues at relatively low cost at this and similar community based events.
12. We would aspire to continue with this work, subject to funding and resources.
Pension Plan Charges
13. We believe that modern pension plans have much simpler charging structures than older plans, which often have complex charging structures and penalties for stopping contributions. However, we have watched with interest the development of “active member discounts” in modern pension plans, where lower annual management charges are applied to active scheme members and higher annual management charges are applied to members who leave their workplace scheme, usually through no fault of their own.
14. We believe that many modern pension plans can be obtained with lower charges than some Individual Savings Accounts, particularly where employers can negotiate lower annual management charges dependent upon the number of members joining the plan.
15. The Financial Services Authority has already done a lot of good work in this area with the requirement under Treating Customers Fairly to disclose charges in plain English.
16. Unlike many savings products, pension plans are not simple to administer due to the volume, layers and complexity of pensions legislation. For example, there are reporting requirements and complexities in paying out benefits that require manual processes to be carried out by skilled administrators. Pension providers will typically have whole teams of technical experts analysing changes to legislation and how both old and new legislation affects their products and processes. We would not want regulatory pressure on pension plan charges to be at the expense of quality administration, given that we deal with a number of complaints arising from maladministration.
29 November 2011