Key speechesTalking to employers about pensions from now and from 2012
Published: DC World, October 2009
From 2012 more than 1 million UK employers will be asked to enrol their employees into a pension scheme.
That is a radical shift in pension provision in this country and small employers will be at the heart of this reform to enable more saving for retirement.
We at the regulator have been given the responsibility of maximising employers' compliance with these new duties, and working with the Department for Work and Pensions to develop our capability, we are focused on making it as easy as possible for employers to engage with the emerging system.
To meet the demand of auto-enrolment, the Government has also set up the Personal Accounts Delivery Authority to establish a new low cost pension scheme aimed at low to medium income earners. This is expected to be the largest defined contribution trust-based scheme in the UK, and we will regulate it.
The Pensions Act 2008 places duties on employers to automatically enrol all eligible workers into a pension scheme which meets the minimum qualifying standard and to pay contributions of at least 3 per cent of their workers' qualifying earnings.
The Act also requires that employers, pension schemes and pension providers keep records to enable us to check employer compliance. Employers will need to keep records about their pension arrangements, automatic enrolment and the opt-out process, as well as the contributions they have made. We will use these to check employers are complying.
Occupational pension schemes and pension providers will also need to keep records of enrolments and opt-outs in respect of each employer, as well as information relating to individual scheme members. We will use this to confirm enrolment and payment of contributions, and to help identify prohibited behaviour such as employers inducing employees to opt out of pension saving.
DC market-place
The reforms will inevitably change the nature of pension saving in the UK and in particular the DC market. Across the industry planning is already being put in place to make the most of the opportunities that arise from of 2012.
We are focused now on improving standards of governance and better member understanding in DC, which are important now in light of the recession, and are critical in the run-up to 2012.
We know that employers have concerns about giving information without crossing the boundaries of financial advice. So we have recently published guidance, jointly with the Financial Services Authority, that is aimed at supporting employers in “Talking to your employees about pensions”.
However this is just the beginning of a long journey for a proactive, positive and comprehensive communications approach, one which we will develop and deliver in partnership with our regulated community.
We know that workplace pension reform will feel significant and new, particularly to micro and smaller employers and that they will need the most help, particularly through the early stages.
Our research tells us that business intermediaries such as independent financial advisers, accountants and lawyers will play a key role in supporting those employers. For this reason, our communication campaign will be targeted to the intermediary community from next year, so they are ready and able to provide the help, advice and support employers will need.
We will then communicate directly to employers from 2011. Our focus will be on ensuring they have what they need to prepare to register with us when we call them to duty.
Our focus will be on making that process as easy as possible for employers, something we are designing and testing hand-in-hand with the pensions and business community already. With the help of the likes of the EEF and CBI, we will get the detail right for members. We will work alongside providers, administrators, payroll professionals and others to ensure that the system we design will minimise the burden.
Risk-based regulation
Our regulatory approach to employer compliance will be consistent to our existing risk-focused model.
Key to this approach is to have a good understanding of the existing risks in the pensions' landscape, being vigilant to emerging risks and deciding what the appropriate regulatory response should be and which part of the regulatory toolkit to apply.
The nature of the risk will determine the nature of our regulatory response. We are therefore seeking to develop and maintain an understanding of the risks and drivers of employer non-compliance so that we can respond appropriately.
Fundamental to this is our commitment to a positive approach to educate and enable employers to comply through high level communication and proactive interventions.
Enforcement action will be taken when necessary to tackle cases of deliberate non-compliance, consistent with our risk-based approach now and from 2012.
Engage now
Whilst the regulations for auto enrolment will not be finalised until 2010, we can focus now on encouraging engagement with pensions, and encourage those already planning for 2012.
Advisors and trustees can start being engaged with employers in helping them to plan ahead to make sure they know and understand exactly what is required of them.
We will support employers by ensuring that they have all the information they need to comply with their duties in time and encourage them to be engaged with their workforce on pensions provision.