AUTO-ENROLMENT SPEAKERS TIM GOSLING CAROL YOUNG POLICY LEAD: DC - - PowerPoint PPT Presentation
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
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POLICY LEAD: DC PLSA
DIRECTOR, REWARD, PENSIONS & BENEFITS RBS
PLSA DC COUNCIL SPEAKERS CHAIR
APP POLLING SESSION
@francoisbarker
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AUTOMATIC ENROLMENT: TAKING STOCK AND LOOKING TO THE FUTURE PLSA
1. Contributions are not adequate and there are gaps in the coverage of automatic enrolment.
from pension saving (PLSA precis of report findings)
Entitled worker 22- SPA 16-21 Non-eligible jobholder Eligible jobholder Non-eligible jobholder SPA-74 < Lower earnings threshold (£5,876 or below) > Lower earnings threshold but up to and including earnings trigger (£10,000) > Earnings trigger Non-eligible jobholder
18- SPA 16-17 Non-eligible jobholder Eligible jobholder Non-eligible jobholder SPA-74 > Lower earnings threshold but up to and including earnings trigger (£10,000) > Earnings trigger Non-eligible jobholder
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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
3% per cent employee, 2% employer 5 % employee, 3 % employer April 2018
April 2019
Stakeholder consultation Early 2020s? Reduction in age threshold to 18 and removal of LEL ? Exact timeline still unclear
3% per cent employee, 2% employer 5 % employee, 3 % employer April 2018
April 2019
Stakeholder consultation Early 2020s? Reduction in age threshold to 18 and removal of LEL ? Phased increase in contributions to 12 %
? Not yet Government policy – the PLSA will have more to say
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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.
Government and stakeholders broadly happy with this definition. Status uncertain – Government formally reviewing line between self- employment and worker status. 4.8 million individuals up from 3.2 million in 2000. 17 % currently saving into a pension, down from 23 % in 2009/10. Workers (for the purpose of PA2008) Gig economy workers Self employed people
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.
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AUTOMATIC ENROLMENT: TAKING STOCK AND LOOKING TO THE FUTURE RBS
Bank provides pension funding of 15% of salary for all colleagues Colleagues have flexibility to reduce and take pension funding as cash Total assets c£1.1bn Contributions of c £80- 100m pa
active, 30k deferred Current average contribution rate 6% Auto enrolment 2018 Two thirds of active members save <5% Half of those (i.e. one third of eligible members) save nothing Average pot sizes are low (c£15k) Less than 5% of members have pots >£100k BUT SO Two AE events in one year Step up to 5% AND triennial re-enrolment c. 20k active members will see contributions increase as a result Will they continue to save?
“Do it for me” Default since 2017 Growth phase – DGF Switching 7 years from TRA AMC: 33bps -> 25bps “I know how I’ll take my savings” Same growth phase as default Same switching period (7 years) AMC: 33bps ->17bps (lump sum)/31 bps (annuity) Default: Drawdown Lifestyle Annuity Lump Sum “Do it myself” Building blocks Equity funds mostly passive 13 Self Select Fund Choices 3 Lifestyle Options: >90% of membership
Member’s DC Savings More IN More OUT
Engagement only matters to extent it improves member outcomes
✓ Provide analytics - not just “performance” ✓ Identify “high value” engagement points & link to design ! What if members don’t do what they say they will? ! High levels of opt out ! Small pots ✓ In to what and for how long? ✓ More members, more savings, greater expectations ✓ Sophistication vs simplicity ! Get house in order on costs, value and transparency Outcome Focussed Engagement More IN More trust ✓ Out to where, and when? ✓ Default design ! Costs and charges ! Transitions & switching More OUT
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