Cost and complexity increase support for multi-employer schemes
The cost and complexity of running a pension scheme is increasing the appeal of multi-employer schemes, experts have said, as a survey shows industry support for government-backed scheme consolidation.
Mastertrusts and off-the-shelf solutions have been touted as the key to small employers managing auto-enrolment of their members. The results of a survey this week indicated appetite for more schemes to be offered to employers, but experts have questioned the need.
A large number of employers are concerned about cost. The small employers are struggling with the complexity
The Association of Consulting Actuaries this week released the final report of its 2015/16 pension trends survey, entitled ‘Time to pull together’.
The survey covers 477 employers sponsoring more than 620 schemes. It found 70 per cent of respondents either support or see value in the government encouraging employers with small defined contribution plans to merge into multi-employer schemes.
The proposal that government should facilitate the development of large collective schemes was supported by 69 per cent of respondents.
Gareth Boyd, senior consulting actuary at Willis Towers Watson, said the chance to merge schemes and offload small pots belonging to deferred members was appealing to employers.
“A large number of employers are concerned about cost,” he said. “The small employers are struggling with the complexity.”
He added that part of the challenge for employers was the constantly shifting regulatory landscape. This has been compounded by the possibility of further change to pensions tax relief, with the proposed change to a taxed, exempt, exempt structure.
“People just don’t see a stable environment,” he said. “There’s a lot of upheaval to make that change [to TEE], and what’s to stop the government changing it all again in a couple of years.”
Multi-employer schemes
Giles Payne, director at professional trustee company HR Trustees, said trade organisations would be well placed to create multi-employer schemes.
“It could be one for trade organisations and trade bodies to negotiate with providers to get… better terms for employers.”
ACA survey: key findings
- 69 per cent say the government should facilitate and encourage the development of large collective schemes.
- 78 per cent of employers would support the government considering legislation to facilitate automatically converting accrued benefits to be rationalised and crystallised into a new scheme.
- 81 per cent of employers are concerned about the level of pension spending they are incurring.
- Only 13 per cent think an Isa-style tax system with a government top-up would boost pension saving.
- 31 per cent say reductions in tax relief and pension complexity have caused employees on higher incomes to leave their schemes.
He added: “It needs someone or some organisation to put it together, but... the larger organisations will have put their arrangements in place already, so it’ll be much harder to get it set up.”
Last year, the National Hairdressers’ Federation set up a mastertrust to help employer members comply with auto-enrolment. It signed up 83 employer members within a few weeks of launching.
However, Richard Butcher, managing director at professional trustee company PTL, said small employers have plenty of options when it comes to running their pension schemes without additional ones being set up.
“There are tools that are available to employers that make life easier for them. They don’t have to go out and set up their own trust-based pension scheme, they don’t even need to buy a group personal pension scheme… Nest is highly subsidised by the Department for Work and Pensions, so it’s not expensive to get in and they have a legal obligation to accept every employer.”