AccountingWEB caught up with Steve Webb to find out how the government is communicating and engaging with accountants when it comes to auto enrolment.
With a general election just around the corner, Webb spoke openly about the importance of connecting with the profession and mobilising advisers to small business.
Towards the end of last year we sourced questions from AccountingWEB members and put many of them to the minister.
Here’s the full interview:
How do you see accountants and their role in the AE programme?
Progressively increasing I think, obviously we’ve done the big firms, people who have HR departments, pensions departments and lawyers, but we realise that we’re getting to a section of the market where, frankly, a lot of employers have never had a pension scheme before and that’s the point of the exercise. We know that people will turn to people they trust like accountants, bookkeepers and payroll bureaux. So we want to make sure that the go-to people, the accountants in many cases, are equipped, feel confident and know what to say to small firms and can help them make good choices.
AccountingWEB launched its ‘No-one gets left behind’ campaign to help raise AE awareness within the profession. Do you think DWP and TPR are doing enough to connect with accountants?
I’m sure we can do more. I’m talking to as many trade bodies and as I can and writing articles for accountancy magazines, but we can certainly step all of that up. One of the problems with auto enrolment has been communicating with people at the right time. If we’d written in 2012 to small businesses it would have gone straight in the bin. So what we don’t want to do is contact people before they’re in a position to something about it. We’re very much accelerating a lot of this third party network and that’s why we’re having this conversation now.
What are you doing to mobilise accountants?
Well part is what government does and the other part is what we inspire others to do. So for example I think the Friends of Auto Enrolment has been great, as well as the intention to have local groups with people in each little area who know it matters and know it is a commercial opportunity. But the scale is kind of breath-taking. We’ve got millions and millions of people in already but they hardly work for any firms, it’s just a few thousand big employers. The scale is astonishing and therefore we have to ramp all of this up and there’s a bit of supply engenders demand (and the other way around) that once people are getting these letters they will be wanting to ask questions and people will be coming to us.
Why is there a disconnect between the number of employers that expect their accountants to support them on AE and the number of accountants that actually plan to do so?
I imagine a small employer kind of assumes everything’s for free. I think we need accountants to see this as a commercial opportunity, because it is an extra service that people want. Obviously we want to minimise the cost to employers and we want to support employers directly, so I think we want to make sure that what TPR does, the step-by-step guides they produce, the comms they produce, enables an employer who’s engaged to stand on their own two feet, but we recognise lots of employers just won’t engage. As soon as the phone starts ringing on a regular basis more people will engage. We found this with the payroll industry, very early on they were focusing on RTI and we couldn’t get them interested in AE. It was only really when it hit that people got engaged, and that’s just human nature.
Would you consider using HMRC as a communications channel to help raise awareness of AE?
I did take this suggestion away from the Bristol Friends of AE meeting that we had, because people said “send us an HMRC letter and we all open it, send us a TPR one and it’s a ‘who’s that’ kind of thing”. We’re certainly looking at how to make our comms more effective. One of the reasons we’ve held back from that so far is we have wanted to be clear that it is TPR that has the enforcement role. So they are being paid serious amounts of public money to make sure that principally the education and the enabling and so on, the enforcement kind of comes at the end of that, that it is The Pensions Regulator who has the legal duty to get firms to do things. It gets confusing if it’s got an HMRC letterhead, people start ringing HMRC and when they say “don’t ring us, ring Brighton”, people get annoyed, so we don’t want to confuse the messages. We clearly need to test what we’re sending out and if it’s not reaching small firms we will reflect on that further.
How about co-branding with HMRC and TPR? A lot of employers see HMRC as more relevant to them, do they not?
They do, but we will annoy people if they get a letter and they’ve responded to the HMRC bit because they recognise it, and they ring their tax office and the tax office tells them to go somewhere else. That’s really going to annoy people. So what we’re trying to do through our general comms campaign is flag TPR and the website. We just don’t want to confuse the message, but you know I take the point, we want comms that work. So we’re constantly testing and to be fair NEST does a lot of its customer research on the smallest firms so we already know a fair amount about what gets through and what doesn’t. But TPR are working with HMRC to look for opportunities where it would be appropriate for them to direct people to TPR. Those conversations are going on.
Would it have been simpler for the small employer if pension contributions were treated like another form of National Insurance, reported to HMRC via RTI?
It’s partly because we are where we are, in a sense. It was set up on this basis years ago and I don’t think anyone is seriously suggesting we throw it all up in the air and start again at this point. Five years ago maybe we should have looked harder at that, but on the other hand HMRC gets the RTI information but they don’t as far as I’m aware get the age information. You can fix that, but there are various things you need to know for assessing people for auto enrolment. It’s not just the wage figure, so it doesn’t solve all the problems. Five years ago it might have been a clearer thing to do but we are where we are and we just have to make it work really.
What are you doing to remove complexity from the AE programme?
Pretty much every change we’ve made since 2010 has been de-regulatory as regards auto enrolment. For example, small firms would have had to enrol people at the National Insurance threshold at just under £6,000 a year had we kept the previous policy. We’ve jacked that up to £10,000, so there are a lot of employers who employ people who are barely earning more than state pension who were just taken out of it altogether. We introduced the three month waiting period when someone starts. Without that people would have to enrol people within hours of walking through the door, so people appreciated that. There’s a set of people you won’t have to enrol - Christmas workers or Summer workers and so on. What we then did is try to strike the balance between constantly faffing, tweaking the rules every month when something else comes up. We want a measure of stability but what we did then do was a big consultation a year or two back asking people to tell us all the things they didn’t like, all the practical problems. We focused on the things that really annoyed people like the pay reference periods and the different definitions for auto enrolment. We fixed and aligned that. We changed the law so you won’t have to auto enrol someone who’s exceeded their lifetime tax limit if you don’t want to. We’ve listened and tried to make changes to the big things that annoy people. Sometimes complexity is necessary. I won’t say it always is, but you’ve got to get the right people enrolled, it’s a legal duty, and there’s a measure of bureaucracy associated with it. But I’m always open to further things. If people come back to us and say you’ve got this bit of bureaucracy, it’s not adding value, it’s just adding costs, then we’re always open to further changes.
Would you consider automatically enrolling everybody that is earning, regardless of age and earnings?
Certainly not regardless of earnings. For example, we’re paying a state pension of around £7,500 a year. What’s the point of all this stuff - it’s to make sure when you stop working you can more or less maintain your standard of living in retirement. Well if someone’s earning £5,000, £4,000 or £3,000 why would we automatically take money out of their pay packet to top up a state pension that’s bigger than what they’re paid? That would be ridiculous and disproportionate because there’s a cost to firms and a cost to everybody doing this stuff. We’ve got to auto enrol the right people. On age, 22 felt the right sort of balance. People are out of full time education and so on. You could look again at these things, but at the moment we don’t want to change it, everybody is set up on this basis for now, but it isn’t written in stone forever. Clearly our views about the other end of the age scale and what’s the right point are changing all the time. Because we have such a thing as a state pension age, there’s a logic that defaulting people into pension saving beyond state pension age might not be appropriate. But of course, you’ve still got ‘opt-in’ for people who want to go on working and saving for a pension can do that.
Are we likely to follow Australia, Chile & Denmark and have full compulsion for auto enrolment and much higher contribution limits?
That’s two different questions there. So the case for compulsion is weaker than it was. You might have said on day one before we did any of this it’s just 4% a year, might have looked a bit like taxation. But if I had said at the last election vote for me and I’ll take 4% of your pay out and I’ll put it in a financial product that you don’t trust, that would have been a tough sell. Now that we’ve the best part of 90% staying in and the people who are opting out very often it’s because they’ve already got enough pension as far as they’re concerned or actually forcing that last 10% in who actively really don’t want to do it. If we’d had 50% staying in I think compulsion would be back on the table. With 90% we’ve got it about right. Contribution levels we will need to address, I’m sure of that. Once we’ve focused on getting everybody in - that will be 2018 before everybody’s in at the full contribution rate - I think the next parliament will have to come back to that. I’ve floated ideas about automatic escalation, so by default if you get a pay rise a bit more goes into the pension. That kind of thing is on the table but it’s something for the next parliament.
Why couldn’t AE be done in a simplified, less bureaucratic, way for small businesses?
Name three examples of how it’s bureaucratic? Some people say it’s all terribly difficult, but we’ve specifically gone out and consulted. We’ve asked people to tell us which bits are bureaucratic, which bits don’t work. We’ve made changes in response to the things that people most said. So if there’s still stuff out there we’re still listening. In terms of small businesses, we’ve created a pension scheme called NEST. It’s got 1.5 million people in, it’s designed specifically for that group, for people who don’t speak pensions, for people who don’t do pensions, and it’s going to be a bulk standard product. We’ve set up a pension scheme, we’ve done that bit for you. You just choose NEST, they’ll tell you what to do and you do it.
At the smaller end of the market, if the ‘capacity crunch’ happens, would you consider pushing back the later staging dates to give the market more time to cope?
Well bear in mind auto enrolment has been delayed about three times to my knowledge, twice by my predecessor. We pushed back the smallest firms from June onwards, so we’ve already given extra time. NEST has known the profile, what’s coming and has been planning for it. Of course it’s not just NEST, we’ve got NOW: Pensions, People’s Pension and some of the commercial providers going quite far down the market, further than we probably thought. Of course you’ll get a vanilla product in the sense that it will be standardised, it won’t be customised. It will be quality - they’ve put a hell of a lot of work into a product that works for small firms, but it will be standardised and of course that’s the quid pro quo. To do a million small firms you’re not going to get customisation unless you pay for it. There are options out there to pay for it. Given that most of these companies haven’t ever had a pension before, actually do they need customisation or a standard product that works?
What's in it for the small business owner?
Clearly we could have said well you’re a small business struggling to get by, this is just another burden you can do without, we’ll leave you out. And we would have excluded millions of people who are at risk or retiring poor. In a way we’ve tried every other way of getting pension provision to these folk. We’ve tried stakeholder which was opt in, failed pretty spectacularly. We’ve tried education information, advertising campaigns. Automatic enrolment is the only way, short of compulsion, to get these folk in. There is evidence actually that employees respond positively to it. We recognise it’s a cost to small firms but actually it is about the welfare of their employees. Do you want the people who work for you to retire poor or not? That’s the question really. Ultimately, particularly for older workers, you want them to be able to retire at the right time and if they’re got lousy pension provision they won’t be able to afford to retire. In terms of managing your workforce having decent pension provision gives people choices.
Why are you forcing small employers with say one employee to set up a scheme regardless of whether anyone wants to actually remain within it?
Well they don’t have to set up a scheme. People use this phrase, but there’s ones out there with that target market in mind. You have to choose a provider, the letter you get says there’s this thing called NEST and here’s the website. Sure you have to put a percentage of money and send some electronic information off to the provider, but I think it’s possible to overstate. Clearly if you want to shop around and look at different providers there’s a cost and time involved, but that’s not a necessary part of all this. Again I come back to the point of what’s the alternative? It is millions of people who have the misfortune of retiring poor. That can’t be right.
Many accountants have no idea if the software they use will support the schemes clients choose or indeed whether it will produce all of the paperwork required. What’s your advice on this?
At this end of the market it’s far simpler really, because overwhelmingly people are choosing one of three of four providers. We know who they all are, frankly they’re all talking to all the major software providers. So if you use standard payroll software or whatever does these things, for the big providers and frankly that’s who all these small firms are going to use, it’s all pretty much sorted already, or it will be sorted by the time we get to these guys. In a way it’s the medium-sized firms who have helped us get there by asking all these questions, all the infrastructure is already in place. The small companies are able to benefit from the fact that we’ve done it in this sequence. By the time we get to those who are least able to do this, most of the infrastructure is sorted.
On UK workers seconded overseas, why insist someone working abroad on a UK payroll is auto enrolled?
We had all sorts of riveting discussions about what constitutes a worker and we even took through some special regulations to deal with particular categories of, you know if you work on a ferry does it matter where the ferry starts, ends, or where the company is registered? Inevitably where you’re dealing with the entire workforce you get these little niches and so we thought carefully issue by issue trying to draw sensible lines. If someone feels we’ve got it wrong somewhere lets us know, but essentially we’ve tried to go with an intuitive understanding of the target population that we’re aiming for.
How are you going to make the pensions industry commission structure much more transparent than it is today?
First of all we’re going to ban commission in these auto enrolment schemes. That’s how we’re going to deal with it, but more generally the charge cap. So from April the default funds 0.75% all encompassing, and then further restrictions like a ban on commission and charges that go up after you’ve left the company. In 2017 we’ll take another look at whether we need to ratchet the charge cap down further, and on the need to bring more charges in, and new duties on people running the schemes. This is a whole new world when it comes to pension charges.
AccountingWEB has launched the No-one gets left behind campaign to alert as many accountants as possible to the obligations implied by auto enrolment. Read our simple eight-point statement which sets out the auto enrolment facts you need to know.