UK: Pensions - What Should RPs Be Thinking About?

Last Updated: 27 January 2014
Article by Christopher Murray

Those RPs who participate in any of the SHPS defined benefit structures or earlier growth plan series will know only too well that the spectre of funding deficits has risen – bigger and more daunting than last time, with increased funding rates and higher deficit recovery contributions from this April.

Auto-enrolment looms

Even if you have consulted your staff and restructured your schemes in order to mitigate future liabilities under these arrangements, what about the looming nightmare that is auto-enrolment or the financial pain of compliance?

There will be hordes of advisers scratching at your windows, trying to tempt you with their services but if they are offering to talk to each one of your auto-enrolled staff individually, beware! Ask yourself why does an employee that has not previously chosen to join a pension scheme suddenly need one to one advice? This situation is totally different to voluntary entry, where many employers like to ensure their staff are being helped with investment choices. With auto-enrolment, there aren't any investment choices – at least not at the point of being enrolled so what are you paying for?

RPs initially think about the cost of auto-enrolment in terms of contributions payable, especially since often, only a small proportion of their workforce currently participates in any kind of employer-sponsored pension arrangement. The additional expense is going to hurt. By October 2018, you will be paying three times what you will have to pay on your staging date.

Will many staff opt-out? The largest employers (big retailers) who 'staged' on 1 October 2012 have a remarkably similar staff profile to the average RP, with a small core of management and many lower paid workers. Yet to their financial directors' horror, less than 10% of employees have opted-out so far.

Other ghouls to face

Can you afford to enrol everyone into social housing pension scheme defined contribution (SHPS DC), for example? Can you afford not to? If you are fortunate enough to have an option, do you know enough about what else is available to make an informed choice?

And it's not just the additional contributions that will hurt. Have you considered how you are going to run the auto-enrolment process? Without setting up some kind of system to handle all of the communications that RPs must issue to their staff – even those who already participate in a scheme – you will face a challenge. Many payroll systems can help with categorising staff and assessing eligibility for auto-enrolment but we have yet to come across any that will also handle the communications.

Getting the message

What communications? Well, apart from letting your staff know what's coming and possibly needing to consult (depending on the changes being imposed) all staff need to receive very specific information about their status and options both at the point they are assessed as being eligible for auto-enrolment (or being ineligible, as the case might be) on postponement and when opting-out.

Going it alone

Then there is the cost of getting everything to work together; there has long been a feeling in the RP community that SHPS (more specifically, The Pensions Trust) will step in and make everything work. In recent years, many RPs have been faced with difficult decisions over restructuring, failing financial status and now the management of auto-enrolment, none of which The Pensions Trust help with. It's not allowed to give advice and it does not provide software (known as 'middleware' that sits between itself and your payroll) so you are on your own.

Are you aware that you will have to assess your staff every month to see if their status has changed? Do you know what fate awaits RPs who get it wrong? Have you thought about getting together a project team? You will no doubt appreciate that a lot of thought and planning needs to be given to auto enrolment and the cost of professional help will almost certainly be higher than you think.

There is another murky figure on the horizon – the end of contracting-out in 2016 and the ensuing increase in National Insurance Contributions. And what about the impact on your accounts when deficit recovery contributions have to be amortised and accounted for under FRS102?

Don't feel overwhelmed – we can help. Contact myself or one of our team.

We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Holdings Limited 2014. code 13/051 exp: 31/07/14

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