Has this been created to entice people in?
For smaller employers, for automatic enrolment, yes, but also for larger employers that are seeking to move, maybe they’ve chosen a pension provider that isn’t delivering the goods for one reason or another.
They want to switch to somebody else. They can look at using our platform and save themselves some money in payroll because for a larger employer we will offer that as a free bolt-on. They’re bringing us £2m, £3m, £5m, £10m of assets, and we’ll say: “You can have that, we’ll throw that in.” We bundle it in together.
Has auto enrolment lived up to expectations?
It’s not lived up to expectations for the 9 million employees that have been automatically enrolled. I don’t think it’s lived up to expectations for almost a million employers that are grappling with something that is massively overcomplicated.
I’m choosing my words carefully here, but automatic enrolment is a simple ethos. If somebody is over a certain age, earning a certain amount, stick them in a pension scheme. Then somebody at the Department for Work and Pensions (DWP) came up with a wonderful idea to build in an exception for this, an exception for that and a carve-out here.
In typically British style, you’ve taken away the compulsory element of it. How many pensions ministers have we had in the last five years? I’ve had this conversation with every one of them and said: “Simplify it.” Even Frank Field’s committee wants to simplify it, but doesn’t have the power to do this, so they have deferred it until the mid-2020s.
I was first automatically enrolled in 2001 when I lived in Hong Kong. Automatic enrolment has been in Hong Kong for many, many years and it is compulsory. There was no increasing of rates and contributions. There was one rate and I could choose to pay more than the minimum.
In Malaysia they looked at how much a 20-year-old should put aside of their salary to give them of a 50 path salary pension at retirement. They came up with an automatic enrolment contribution rate of 23%.
Politically we didn’t have the backbone to do that, so we’ve come in with 1%; rising granted, but not for a couple of months. Our focus is now on challenging the existing products, the old books, the £400bn of assets that sit with the life companies in dormant pension schemes with massively overpriced products. Why leave it at 1% with Standard Life? Why leave it at 1.5% with Scottish Widows? Come to Salvus. Our starting price is 0.5%, but if you negotiate hard with us, you could get us down to 0.29%. So why sit and pay?”
It’s not even the employers that I’m selling this to. I’m shaming employers into offering their staff a better deal, because it’s the staff paying this annual management charge, not the employer.
In this day of delivering transparency an employer needs to think long and hard about how they offer value for money to their staff because there could be a situation where somebody challenges them on that. “Why am I retiring on nothing like enough to live on, because a load of it has gone on charges that needn’t have been?”
Unfortunately, those members that complain will do so when they are about to retire, when it’s too late. Employers need to unlock that ticking time-bomb and deal with it now.
The TPR didn’t think for a second that master trusts would take control of the market in the way we have. A 90%-plus market share of automatic enrolment has gone to master trusts. There’s a reason for that. We’re all on a maximum of 0.75%, but as I said, our price today is 0.5%. So, we’re only asking for two thirds of the maximum charge that we could take.
