By Iain Chadwick, Consultancy Director, Johnson Fleming
The pensions landscape has undergone a major renaissance over the past two years, however the immediate future will see some of the biggest changes the market has seen in a decade.
While auto-enrolment led the workplace pension revolution, the changes announced in the 2014 Budget and Queen’s Speech will take this transformation one step further.
So what are those changes and how can UK businesses ensure they are prepared? Below, we’ve highlighted the five most significant alterations you need to be aware of.
1. Charge capping of Annual Management Charges (AMCs)
In April 2015, all AMCs will be capped at 0.75%. For businesses and employers, this means that if your current scheme has annual charges above this, it will no longer qualify as an auto-enrolment pension.
Importantly, the average AMC in the UK is currently 0.8 per cent, so many businesses will need to review the schemes they have in place, even if they have been specifically selected for auto-enrolment.
2. Removal of Active Member Discounts (AMDs)
A year later, in April 2016, AMDs will be completely removed. While historically, these have been heavily used, the decision has been taken to scrap them altogether.
Again, businesses will need to explore their current auto-enrolment scheme, and if AMD is a feature of their workplace pension, then it will need to change to remain compliant. For many, this will mean a new pricing structure which will be written into their contract with their provider.
However, employers should check whether this contract includes a change in law provision which will allow them to renegotiate, or an option to end the contract early should a provider refuse to change terms.
3. Removal of member borne commission
From April 2015, no qualifying scheme can contain a consultancy charge structure and by April 2016, this restriction will extend to member borne commission elements.
Previously, the Retail Distribution Review had introduced a ban on providers paying commission to advisers on new Group Personal Pensions and Group Stakeholder Pensions, however, this announcement goes a step further by removing every aspect of consultancy charging or commission remuneration from any auto-enrolment qualifying scheme.
For businesses, the impact of this could be substantial. Firstly, employers will need to review their existing schemes and if this is a feature, change is a prerequisite. Secondly, firms will now be required to pay an upfront fee for services which had previously been covered by the commission.
Although an April 2016 deadline seems quite distant, businesses should be aware that many providers will look to implement this change ahead of this date.
4. The start of re-enrolment
For larger businesses, auto-enrolment began in October 2012, and with re-enrolment occurring every three years, these companies will need to look at this now.
The significant change that auto-enrolment presented two years ago meant that many companies scrambled just to get a qualifying auto-enrolment scheme in place to meet their staging date. For some, it’s fair to say that not much thought was given to the implications and ongoing management of the selected scheme, the priority at that point being, just to stage without penalty from The Pensions Regulator.
Two years on, those support options may not be proving sufficient so now is the time to look at this process.
5. The largest tranche of businesses auto-enrolling
Between April 2015 and January 2017, approximately 598,000 UK businesses will stage, representing the largest group of companies to auto-enrol to date. Unsurprisingly then, some have voiced concern about the industry’s ability to cope, not only with the sheer amount of auto-enrollers, but with re-enrollers and those reviewing their schemes due to the changes noted above.
Many companies have turned to IFAs and accountants for support, and while they can often provide assistance in aspects such as sourcing a scheme and conducting assessments, they are unlikely to be able to help with the day-to-day scheme administration and communication.
Therefore, businesses should act now and ensure they are considering more holistic support options.
Clearly, the pensions landscape has, and will continue to undergo a significant evolution however, by acting fast, businesses can ensure they receive the best support to facilitate a stress-fee process of implementation while achieving the best value for money.
Johnson Fleming is a leading independent workplace pensions and employee benefits specialist which offers full outsourcing of workplace pension schemes, from consultancy and advice on initial design, to the day to day administration and governance of them.