Tuesday, 27 January 2015

Pensions. (I am lost for words)

I detailed a colleague to be our Auto-enrolment Guru. Here's his latest analysis.

Various Trade reports in the financial press, coupled with murmurings and press releases from corporate and stakeholder pension providers, suggest the future for Auto-enrolment is far from rosy.

Legal & General are pushing to have “Opt In Members” excluded from the legislation,  Now Pensions and Scottish Life are saying the costs are getting higher and Aviva (who have taken over Friends-Life) and saying the regulatory cost cap and Pension Regulator funding contribution is going to make pension provision for small schemes uneconomic.  In principle this will leave NEST to be the sole provider and much of their overhead costs are met by Central Government anyway.

The Peoples Pension scheme has set their fee at 0.5% AMC; for funds under management,  Now Pensions is 0.3% Plus £18 pa per member admin charge and NEST is 0.3% plus 1.8% admin fee on all funds

Industry Talk suggests most pension providers saddled with firms forced to enrol with less than ten members will be totally uneconomic to take under their wing  and many are not prepared to state that their schemes will meet pension regulator approval and planning to reject  access to schemes with 50 members or less. They  calculate based on National Earnings of 21,000pa  and assuming late staging date pension premiums totally 8%, that small size firms of ten people will produce £16,800 of pension premiums  per annum.

That equates to the Peoples Pension charging £84.00 per annum per firm, Now Pensions £230.40 and NEST £352.80

Although the funds under management will rise, providers are quick to point out that the “Fraud Levy” of £230 will be applied to providers, not employer firms, and the “Pension Regulator “ is yet to decide what charge to levy on the industry for its increased role in policing the legislation and issuing Certification. It seems the overheads will exceed the benefits and pension providers are not now prepared to offer any guarantee that their scheme will comply with the requirements  of the regulator and aim to suspend auto-enrolment in 2016.

Maybe our research is wrong..?


Graeme said...

with dividend yields at around 3% and gilts at a similar level, then the proposed charges are going to eat up the bulk of the growth, aren't they?

Rich Tee said...

If I am made redundant from my job, and I stop paying into my auto-enrolment pension because I am short of money, this is what happens:

- the company discount is lost, so the charges go up to full whack, at least 1 per cent
- an extra "inactivity charge" is then levied on top of that because I stopped paying into it.

If I then get another job but the company offers a different auto-enrolment pension, I have two choices:

- leave the existing in the existing pension and watch it eroded by the "inactivity charge"
- try to transfer the old money into the new pension, which will incur a "transfer fee", assuming that the scheme administrator even permits transfers.

Meanshile, I have a fund in my SIPP that increased 30 per cent last year. People tell me I am stupid for opting out.

mombers said...

I made two suggestions to my MP:
1.Plonk Royal Mail, RBS, Lloyds, etc shares into people's pensions. Prevent all of the snafus with wrong prices - the value is spread out evenly
2.Have a threshold for funds to become fully invested, e.g. the gvmt holds on to your combined contributions until they reach say £1000, paying market interest rates. Once it reaches this level, it goes into a proper pension scheme, so providers don't get saddled with any piddly accounts.
Thoughts? These didn't come to pass but I think it would have helped