Auto-enrolment saw over a million new schemes established with over 10m new savers. This growth continues today, albeit at the much slower pace of about 120,000 new schemes each year.
Most of the change being experienced is being driven by new regulation. Some of the more headline-grabbing examples include Independent Governance Committees (IGCs), the Master Trust approval process, value for money assessments, and implementing ESG.
The workplace pension marketplace has two regulators: The Pensions Regulator (TPR) regulates 63 per cent of schemes open to retail business today, while the Financial Conduct Authority (FCA) 37 per cent.
In reality, the regulator and governance styles have little impact on the day-to-day experience of consumers and so these schemes can be compared in most aspects on equal terms.
The workplace pension market has changed significantly in the last few years. TPR's master trust approval process resulted in over half closing. In addition, providers that did not exist before auto-enrolment now have significantly more workplace pension assets under management than some very established providers.
To help advisers, Defaqto currently reports on 59 workplace pension schemes from 31 different providers. These are all retail schemes open to new business and not tied to an industry or employer type.
TPR publish a list of 38 approved master trusts; however, nine of these are not open to new business or are tied to an employer type and so do not appear on the Defaqto database.
Considering the pressure the FCA is under regarding pension scams, we do wonder why they do not follow TPR's approach and publish a consumer-friendly list of regulated schemes. If the lists from TPR and FCA were combined that would be even more useful.
There are four types of workplace pension governance and the following chart illustrates how they are used across today’s market:
Opportunities for advisers
There are four headline ways that financial advisers can get involved in the ever-expanding workplace advice market:
New businesses Every UK business with an employee must have an auto-enrolment compliant pension scheme from day one of operation. The Office of National Statistics (ONS) figures indicate that there were 118,000 new businesses with employees started in 2019 and we know that every one of them required a pension scheme. This means there is a sizeable new business market constantly available
Existing auto-enrolment schemes Most schemes were established by individuals with little or no knowledge about pensions. There are now employers looking to move to a pension provider that can provide a better or more efficient service. In addition, auto-enrolment and the Equality Act are not natural bedfellows. The selection of some pension schemes has introduced ‘indirect discrimination’ into the workplace and employers are now looking to undo this harm. Examples of how schemes can discriminate against groups of employees include:
- Tax relief system (i.e., net pay with low-income employees)
- Religion (i.e., no Sharia fund option for Muslim employees)
- Fee structure (i.e., fixed monthly fees with young and low-income employees)
Regulation and consolidation. TPR has been very clear about its desire to reduce the number of own trust and small master trusts in operation. In essence, TPR is giving pension trustees three options: