Key speechesGetting ready for 2012
Published: PMI News, October 2009
The second batch of draft regulations for the 2012 reforms, are in consultation, setting out the practical arrangements of auto-enrolment under the Pensions Act 2008. The industry, employers and the general public have been invited to comment and advisers, trustees and employers now have an opportunity to view the details.
We expect the regulations will be finalised in 2010, at which point people can start to take concrete actions, however there are already many ways that the industry and employers can start to prepare.
At the regulator we have been putting in place the capability and capacity necessary to deliver these reforms from 2012.
Our role
Our role will be to maximise employer compliance with the new duties to automatically enrol their employees into a qualifying pension scheme.
Employers will need to register with us to let us know what scheme they will be auto-enrolling employees into, keep and maintain records of contributions and members, and provide information to employees about the scheme.
We are already working on designing our processes and our overall aim is to make it as easy as possible for employers to comply.
We know that the new duties will feel significant to all employers and that micro and smaller employers especially will need help, particularly through the early stages. To help employers to comply we recognise that they need to understand exactly what is required of them and that they have all the relevant information.
We will begin communicating directly to employers in 2011 – a year before the duties are due to be implemented.
We know from our research that intermediaries will play a key role in supporting employers through this process. Most employers will turn to some sort of intermediary when faced with new legislative responsibilities, whether that is an IFA, accountant, provider or a trade body.
So, from next year we will be communicating and working with the intermediary community so that they are ready and able to provide the help, advice and support that employers will need.
The potential of reform
So as we await completion of the consultation a great deal of work is underway to ensure we on track to deliver the potential of these reforms.
Up to 10 million more people will be given access to an occupational pension from 2012 and we expect that many people will start saving who have never saved for their retirement before. This will result in many more people getting the opportunity to enjoy a more comfortable and secure retirement. As we expect many of these new members to save into defined contribution (DC) pension schemes, either through Personal Accounts or another qualifying occupational scheme, it will also see many more people taking on greater personal responsibility for their retirement income.
This will reinforce the growth in the DC market. Already there are over 2.5 million members in 54,000 occupation DC schemes in the UK.
So with this market well established and in light of the potential 10 million more DC members, we are currently focused on improving standards in the DC market, and encouraging employers to get engaged with pensions.
Taking steps now
DC scheme members bear a greater personal responsibility for decision making about the details of their pension and retirement income, so it is very important to help members to understand their options and to make informed decisions.
We are looking to employers, trustees and advisers to play their part in supporting members. As part of this ongoing work we have recently published two pieces of guidance material; a leaflet which trustees can give to members six months before retirement and which sets out the options members have in choosing their retirement income – like choosing the option market option, or deferring purchasing an annuity, or income drawdown; and a guide for employers on talking to their employees about pensions. This answers some of the most common questions employees might ask, such as: Why should I bother providing information to my employees about pensions; What can I tell my employees about my pension scheme; What can I tell my employees if they ask me if it is a good idea to join the pension scheme; and What could I be doing when employees approach their retirement dates?
These products have already been downloaded over 40,000 times from our website.
Making changes now for the future
There are many areas where employers and trustees can already play a significant role in helping their employees to get the most from their scheme. The 2012 reforms will call for much greater employer engagement with pensions provision and we would encourage employers, trustees and advisers to start now to consider what they can do to help employees to save for their retirement.