Having auto-enrolled its 1 millionth member in September, The People’s Pension is now the largest private sector master trust scheme in the country, with an estimated 17 per cent market share.
For B&CE, the not-for-profit provider that operates the scheme, the race is on to be ready to offer the 250,000 scheme members over age 55 the ability to be able to access to their money from April 2015.
The budget flexibilities have accelerated technological advances that had been scheduled to be introduced at a more leisurely pace – with self-serve cash withdrawals key to that functionality.
“It is critical for us to increase our digital capacity. We had been planning to anyway, but the budget has encouraged us to speed up the upgrading of our online capabilities.
“So from April the aim is that people will be able to go online, view what they want, and if they want access all or part of it by transferring it to their bank account,” he says.
The ease with which individuals will be able to terminate their relationship with their pension provider may feel like new ground for the industry but Fiveash, who chalks up 20 years with B&CE next February, is adamant that it is for scheme members to decide.
“If they want to go online and take the lot, that is up to them. There will be regulatory guidelines there, but we have put the power in the hands of the consumer,” he says.
The People’s Pension will have the uncrystallised funds pension lump sum (UFPLS) option in place for April and says it will look to put a flexible access drawdown (FAD) option into its offering at some point later in 2015.
“The government has complicated the whole thing by having these two options, because it makes it complicated for consumers, and will leave some ending up having chosen the option that is not best for them. We think there should be no difference between the two,” says Fiveash, who sees this area as a key point of conflict between the different worlds of occupational and contract-based pensions.
“We have confused people by having these two different domains, so there needs to be some leveling of the two. But whether that means settling closer to the more regulated world of FCA sales or the trust-based world remains to be seen,” he says.Jamie Fiveash, B&CE
Fiveash argues that many of the funds his customers have are so small at present that the cost of moving into a drawdown product may outweigh the tax saving they could make by moving.
“We will offer a FAD at some point, possibly by partnering with another organisation, and the ambition is to have this in place by Q2 of 2015,” he says.
Employers want to see the pension savings they have contributed so much into being put to good use, so despite the new freedoms, it will be incumbent on big schemes such as The People’s Pension to have default decumulation arrangements in place.
Before the budget came along and changed the world, B&CE had a relationship with Partnership for annuities. “This worked well for members in the construction industry because we were able to secure terms that meant they could get access to impaired life rates regardless of pot size,” says Fiveash.
“We operated on no commission – we are not seeking to make money out of the decumulation piece, beyond covering our costs, of course, says Fiveash, while pointing to B&CE’s not-for-profit status.
But the massive changes mean that relationship will be a fraction of what it has been in the past. For Fiveash the future looks very much like full withdrawals, a cash fund and one or a range of in-house or preferred partner drawdown options.
He says the organisation want its own solution for drawdown, but will that be trust-based? “That’s a good question and depends on the trustees appetite for facilitating a drawdown product that they are responsible for. The alternative is that we partner with an FCA-regulated organisation of some sort.
“I am not being critical of advisers and drawdown in the individual market, but this could be considerably cheaper than what people get on an individual basis.
“Or the third option is that we cut a deal with a third party adviser who has access to the whole of market,” he says.
So, given The People’s Pension’s trust-based structure means it will effectively determine where the signposting and guidance it puts in place will nudge people, where does Fiveash think the majority of his retirees, aside from those drawing cash, will end up investing their retirement pot?
“We will start engaging with people a lot earlier, from say 50, and find out what it is that they really want to do. So if that is reach 55 and clear their debts, then we will look to match that. But the way people are looking at retirement at the moment is that it is like a cliff-edge, whereas it is going to me more complex than that.,” he says.
“So for us the question is how do we get people onto our portal and engaged with the investment solutions we need?
“But the likelihood is that it is not going to be annuity going forward. I simply can’t see people doing annuities going forward. So it is going to be some form of drawdown, but whatever it is, for our client base it is going to be execution-only.”
B&CE has, by virtue of its operating with the self-contained world of the construction industry, seen many of its customers reappear at different employers. That is not to say it has not had to deal with the small pots issue before now. Fiveash says he accepts that something must be done to address the issue, but believes nothing much will now happen on the subject, even though there are civil servants still working on the project.
“Given what the industry has got to do between now and April it doesn’t seem fair for them to push it. I can’t see it happening for a while now,” he says.
“But we don’t want it forgotten. We believe that for people to get the right guidance from TPAS they will need to have information on everyone’s pot in one place. The best place for this is a single pension register for the industry.
“It is being called the pensions passport, but it has got to be a single hub.
“We think there is a business model behind it. We all have to follow the same TPR regulations, and have to send statements to customers. If we create a central register then what better place would there be for people to access all their information?
“It works in Holland and Denmark so there is no reason why it couldn’t work here. It doesn’t necessarily have to facilitate transfers, and people might not want to transfer anyway, but it would make sense to bring together a register of pensions.”
With auto-enrolment now entering a lull before the next peak in March, Fiveash is relaxed about the engagement with employers to date.
“We do not think that many have gone AWOL. We always thought there were enough advisers and providers out there. Next year will be the same. 2016 will be different however.
“It feels like people are relaxing and thinking it is job done, but who is going to service the 2016 wave?” he says.
Fiveash questions the shape of the staging timetable, which groups together employers with between one and 30 employees.
“The way you deal with an employer with one member of staff is quite different to one with 30 staff – it is questionable that they have got the staging process right. And people should be concerned whether there are enough advisers and providers to serve that part of the market,” he adds.
He is now seeing a lot of activity amongst providers looking to move their existing auto-enrolment scheme to another provider.
“We are seeing unhappy employers wanting to consolidate their schemes and get rid of the expensive ones.
In September The People’s Pension became the first master trust to meet the Institute of Chartered Accountants of England and new assurance framework for master trusts. The independent assurance framework was developed by the ICAEW and The Pensions Regulator as a quality standard to enable trustees of master trusts to demonstrate high standards of scheme governance and administration.
Fiveash believes standards for consumers will only be adequately raised if this voluntary framework is made mandatory. He also believes the independent governance committees that are set to become mandatory for contract-based schemes will always be held back by the structure in which they are held.
“The issue for me is understanding how, where you have a contract between a policyholder and a provider, the IGC can come in between that relationship and start changing things. It is obviously an improvement but I question whether we are dressing something up that doesn’t really work from a legal perspective.”
Fiveash is critical of the way that Nest has been allowed to obstruct consumers’ ability to compare the market by using a single monoprice figure.
“If I am a consumer I want to be able to compare providers one against the other. We know that the DWP is in a difficult position because it oversees Nest but it feels like we haven’t got the solution we should have. The consumer wants to see one price structure for a product, and it is a nonsense that we are dancing round the issue.
“I understand the difficult position with Nest’s loan, but if the DWP wants the restrictions off Nest then they have got to play by the same rules as the rest of us. It smacks of not being right that they have been given the green light to go for front-end charges. I think we need some form of government body – a sort of Ofpen – to oversee issues of fairness like this,” says Fiveash.
He is also critical of the TPR levy he is required to pay – 86p per member, which works out at between £1.5m to £2m per year. “It is not costing between £1.5m and £2m to regulate us. We don’t get anywhere near to that level of regulation. We are paying extraordinarily high amounts to TPR,” he says.