Many LBA members will be wrestling with the new Workplace Pensions auto-enrolment regime There’s not much advice out there for small businesses. If you have just 2 or 3 employees and you’re investing 1% of their salaries into a “master trust” scheme then you’ve probably got a pension pot of less than £1000 to invest annually. Trying to find a financial advisor who will give you affordable advice for that kind of investment can be a thankless task, and none of the big pension providers are interested.
So how do you do it and where do you put your money?
For most of us, our accountants will offer an affordable service to manage the process of monthly payments as an add-on to the normal payroll service. So now in addition to sorting out PAYE, National Insurance and Student Loan repayments for each employee they can also include Workplace Pension payments, and the related admin that involves.
But an accountant isn’t a Financial Advisor, and an accountant can’t offer advice us on where those pension contributions should be invested.
According to a recent report on the BBC, industry regulators have fears that dozens of companies providing auto enrolment pensions are too small to survive. The BBC has also uncovered evidence that employers and workers are being deliberately misled by some providers. “There is a risk of these schemes falling over; there is a risk that members might lose their money,” Andrew Warwick-Thompson, executive director for regulatory policy at the Pensions Regulator told the BBC. However, he said scheme assets invested through asset managers regulated by the Financial Conduct Authority (FCA) would be safe. This will be “the vast majority of cases”.
Some of the small pension providers “may not be run by competent people”, Mr Warwick-Thompson told the BBC. Even where directors are qualified, providers do not always make it clear where the savings are invested, or who owns the schemes.
Unlike big pension providers – known as contract-based schemes – master trusts are not regulated by the FCA. Instead they are overseen by The Pensions Regulator (TPR), which provides a much lower level of supervision.
“There’s not so much member protection in the master trust world, versus contract-based schemes,” Nick Keppel-Palmer told the BBC, the strategy director of Husky Finance, an independent advisory service for small employers.”If they go down, the members’ money won’t be protected.”
However the government has said it was aware of the issues related to some master trusts, and was working to protect employees’ savings. The BBC quotes Baroness Ros Altmann, the pensions minister: “We are determined to ensure the necessary protections are in place. Doing nothing is not an option, as ensuring long term security and protection are paramount in pensions.”
Apparently those whose savings are invested with mainstream City firms have much higher levels of protection, thanks to FCA regulation. Some such savings are also protected under the Financial Services Compensation Scheme (FSCS), but only up to a limit of £50,000.
“It is very easy to register as a pension scheme with the tax authorities, and that’s part of the problem,” Malcolm Small, chairman of the Retirement Income Alliance told the BBC.
In a report for the industry, Mr Small claims only around 10 master trusts are reliable operators – out of a total of 80 – because many are too small or not sufficiently profitable.
Of the master trust providers registered with the Pensions Regulator, only five have currently been given a “kite mark” known as the Master Trust Assurance Framework. These are the official government-backed scheme, National Employment Savings Trust (NEST); NOW: Pensions; SEI Master Trust; The People’s Pension and Welplan.
The Treasury has also said it is looking at whether supervision of master trusts should be beefed up. It is considering whether there should be an approved list of providers – what it calls a “whitelist”- to make choosing a pension company easier.
The BBC gave the following advice to Small Employers
- Use one of the larger master trust schemes to provide a pension
- Report any concerns about your pension scheme to the Pensions Regulator
- See the Regulator’s website for further details of the Master Trust Assurance scheme.