Employers and their staff are likely to pay a high price for inertia when it comes to pensions.
New rules are coming into force at the end of this year that will add significantly both to costs and to the administrative burden of running an occupational pension scheme.
The answer, advisers say, is to move the pension funds into a new arrangement call master trusts – where the pension schemes of a number of unrelated employers are managed by one professional group. This, they argue, will save money as economies of scale kick in and remove the administrative hassle.
Value for money
Yet, according to a survey carried out by advisory firm PwC, 43 per cent of companies are yet to be convinced that the proposed new arrangement offers value for money. And over half have yet to decide whether to do anything in face of the new regime.
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Those are big numbers. And they can mean one of three things: those charged with getting the message across about the new rules are not succeeding; the employers are simply not tuned in; or there is indeed some hidden additional cost in the new arrangement that makes it wise to avoid.
There is no evidence of the third but the fault does seem to lie with some mix of the first two factors.
Pensions are far from the easiest things to market. You are urging people to engage now in something they will not feel the benefit of for up to 40 years when they have far more pressing concerns. And pensions are insanely technical and difficult to understand.
Even the name of the latest rules – IORP II – is almost designed to frustrate. What’s IORP? What happened to IORP I? If I missed that, is there any point engaging now? Lost in all this is the most important element: what does it mean for me?
Everything we know says that employers who opt to stay as they are will face additional costs and their workers will lose out on the prospect of better retirement income. This penny is likely to drop eventually. But, with only four months remaining, a late surge could overwhelm the pensions industry and see some companies – and their staff – paying an unnecessary bill.
