Stream sponsored by: Media partner: NEXT STEPS AFTER AUTO-ENROLMENT SPEAKERS TIM GOSLING CAROL YOUNG POLICY LEAD: DC DIRECTOR, REWARD, PLSA PENSIONS & BENEFITS RBS CHAIR FRANCOIS BARKER PLSA DC COUNCIL @francoisbarker APP POLLING SESSION
Q1. ACCORDING TO THE GOVERNMENT’S WORKPLACE PENSION TRENDS SURVEY PUBLISHED IN 2016, HOW MUCH WAS SAVED INTO PUBLIC AND PRIVATE SECTOR WORKPLACE PENSION SCHEMES IN 2016? APP POLL
Q2. ON 7 APRIL 2019 WHAT WILL THE TOTAL MINIMUM CONTRIBUTION REQUIRED TO AN AUTOMATIC ENROLMENT SCHEME BE AS A % OF ANNUAL QUALIFYING EARNINGS (£5,876 - £45,000 IN TAX YEAR 2017/18) APP POLL
Q3. COMPLETE THE SENTENCE FROM THE FOREWORD TO THE GOVERNMENT’S AUTOMATIC ENROLMENT REVIEW 2017, PUBLISHED IN DECEMBER: “IT IS ESTIMATED THAT AN EXTRA £? A YEAR WILL BE SAVED INTO WORKPLACE PENSIONS AS A DIRECT RESULT OF AUTOMATIC ENROLMENT.” APP POLL
Stream sponsored by: Media partner: AUTOMATIC ENROLMENT: TAKING STOCK AND LOOKING TO THE FUTURE TIM GOSLING PLSA
THE REVIEW: THREE STRATEGIC ISSUES 1. Contributions are not adequate and there are gaps in the coverage of automatic enrolment. 2. Self-employed people tend not to save for retirement in pensions. 3. Automatic enrolment has raised savings levels but most people remain disengaged from pension saving (PLSA precis of report findings)
COVERAGE AND CONTRIBUTIONS
AUTOMATIC ENROLMENT – HOW IT LOOKS RIGHT NOW 16-21 22- SPA SPA-74 < Lower earnings threshold (£5,876 or Entitled worker below) > Lower earnings threshold but up to Non-eligible jobholder and including earnings trigger (£10,000) Non-eligible > Earnings trigger Eligible jobholder Non-eligible jobholder jobholder
AUTOMATIC ENROLMENT – REVIEW CONCLUSIONS 16-17 18- SPA SPA-74 > Lower earnings threshold but up to and including Non-eligible jobholder earnings trigger (£10,000) Non-eligible > Earnings trigger Eligible jobholder Non-eligible jobholder jobholder
Q5. REMOVING THE LOWER EARNINGS THRESHOLD WILL RESULT IN WHAT PERCENTAGE INCREASE TO THE EMPLOYEE CONTRIBUTION FOR SOMEONE ON £12,500, COMPARED TO THE END OF PHASING? APP POLL
MEDIAN AND LOWER EARNER EMPLOYEE CONTRIBUTIONS COMPARED Pre-April 2018 Post April 2018 Post April 2019 LEL removed Median earnings (£28,600 in 2017) Per annum £227.24 £681.72 1136.2 £1430 Per month £18.93 £56.81 £94.68 £119.16 £12,500 Per annum £66.24 £198.72 £331.20 £625 Per month £5.52 £16.56 £27.60 £52.08
REVIEW CONCLUSIONS – TIMELINE April 2018 April 2019 Early 2020s? ? onwards onwards 3% per cent 5 % Stakeholder Reduction in age threshold to 18 and removal of employee, employee, 3 consultation LEL 2% employer % employer Exact timeline still unclear
THERE IS A PATH TO RAISING CONTRIBUTIONS TO 12% OF EARNINGS April 2018 April 2019 ? Early 2020s? ? onwards onwards 3% per cent 5 % Reduction in age Phased increase in Stakeholder employee, employee, 3 threshold to 18 and contributions to 12 % consultation 2% employer % employer removal of LEL of all earnings Not yet Government policy – the PLSA will have more to say on this in June.
Q6. WHAT IMPACT WILL PHASING HAVE ON OPT OUT? APP POLL
HOW WORRIED SHOULD WE BE ABOUT PHASING? Early social research suggested that c. 2/3 of the target group would remain automatically enrolled. Initial experience is closer to 90 % remaining enrolled – but some are concerned about affordability. Cost of additional contributions is just over £40 a month for a median earner, from April 2018 or just over £10 per month for someone on £12,500. Should we be more concerned about other factors impacting affordability? One example: Bank of England estimate that 2.5 % of mortgage holders would need to find extra money in the event of a 25 bps rate rise. Rises to 7.5 % of mortgage holders in the event of a 50 bps rate rise. But – rises to c. 30 % of mortgage holders in the event of a 150bps rise.
SELF EMPLOYMENT
SELF EMPLOYMENT & GIG ECONOMY Workers (for the purpose of Self employed people Gig economy workers PA2008) Status uncertain – 4.8 million individuals up Government and Government formally from 3.2 million in 2000. stakeholders broadly happy reviewing line between self- 17 % currently saving into a with this definition. employment and worker pension, down from 23 % in status. 2009/10.
ENGAGEMENT
ENGAGEMENT Central question remains the balance between engagement and defaults. DWP clear that engagement has a supplementary role to defaults/inertia. DWP see an important role for communications in reinforcing the initial savings decision. Future of policy in respect of comms/engagement is less clear. Leaning heavily on industry to provide solutions – other than Dashboard. PLSA increasingly seeing better defaults as critical – both in accumulation and decumulation and using engagement/communications to sort savers into those form whom the default is the right thing and those who need something else. The second report of the “Hitting the Target” paper will expand more on this in the Summer.
Stream sponsored by: Media partner: AUTOMATIC ENROLMENT: TAKING STOCK AND LOOKING TO THE FUTURE CAROL YOUNG RBS
RBS RETIREMENT SAVINGS PLAN & AE c. 60k members – 30k Current average Auto enrolment 2018 active, 30k deferred contribution rate 6% Two thirds of active Bank provides pension Two AE events in one members save <5% funding of 15% of salary year for all colleagues Half of those (i.e. one Step up to 5% AND third of eligible Colleagues have triennial re-enrolment members) save nothing flexibility to reduce and BUT SO take pension funding as Average pot sizes are low c. 20k active members cash (c£15k) will see contributions Total assets c£1.1bn increase as a result Less than 5% of members have pots Contributions of c £80- Will they continue to >£100k save? 100m pa
INVESTMENT OPTIONS 3 Lifestyle Options: >90% of membership Default: Drawdown Lifestyle Annuity Lump Sum 13 Self Select Fund Choices “Do it for me” “I know how I’ll take my savings” Default since 2017 Same growth phase as default “Do it myself” Growth phase – DGF Same switching period (7 years) Building blocks Switching 7 years from TRA AMC: 33bps ->17bps (lump Equity funds mostly passive AMC: 33bps -> 25bps sum)/31 bps (annuity)
THE AIM – AND HOW CAN INDUSTRY HELP? More Trust Member’s DC More IN More OUT Savings Engagement only matters to extent it improves member outcomes
POTENTIAL PITFALLS & OPPORTUNITIES Outcome Focussed More OUT More trust More IN Engagement ✓ Provide analytics - not ✓ More members, more ✓ Out to where, and just “performance” savings, greater when? ! High levels of opt out expectations ✓ Identify “high value” ✓ Default design ! Small pots engagement points & ✓ Sophistication vs link to design simplicity ! Costs and charges ✓ In to what and for how long? ! What if members don’t ! Get house in order on ! Transitions & do what they say they costs, value and switching will? transparency
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