Helen Morrissey speaks to pensions minister Baroness Ros Altmann about her focus on auto-enrolment and why some policies have been put on the backburner.
I am speaking to Baroness Ros Altmann at the NAPF Conference just after her first major public speech as pensions minister.
Discussion at the conference was sparked by a ministerial statement issued earlier in the day delaying work on key policies such as pot follows member, collective defined contribution (CDC) and defined ambition (DA).
The reason given for the delay is to allow more time to embed auto-enrolment (AE) and support smaller employers as they reach their staging dates, and to focus on ensuring people understand the new flat-rate state pension.
Such an approach is very different to Altmann’s predecessor Steve Webb, whose reform agenda moved forward at a rapid pace.
However, when I ask Altmann whether we will see a slower pace of reform from now on, it is something she hotly rejects.
“We have these massive reforms to get right and that in itself is moving at a fast pace,” she says.
“If we look at AE, it has taken three years to get 60,000 employers through the door, but we’ve got to get another 1.8m through the door over the coming three years.
“Just because it is the continuation of a policy doesn’t mean it isn’t going to be busy as we have to monitor it, help people through it and ensure the products they are being offered are of good quality.
“We need to ensure the industry is treating new savers so well that they want to stay within the pension system.”
Work is ongoing in this area with the recent launch of a communications campaign urging small employers not to ignore their AE responsibilities.
Other projects coming up include work on ensuring the burgeoning master trust market remains fit for purpose – a project Altmann assures we will hear more about soon.
The End Of CDC?
Given the focus on improving employer and employee experience of AE it may make sense to hold fire on other polices such as CDC and pot follows member.
However, the decision has prompted many in the industry to speculate these policies will be quietly dropped.
“I am at pains to say this is not the case,” says Altmann. “Collectives do have a place but I feel we are either a bit too early or a bit too late with it right now.
“As a result, making sure we have CDC in place for 2018 is not a priority for me but making sure it is in place for the future is important. Once employers and workers get used to the new AE landscape then I think there will be interest in looking at new ways of risk sharing, but things like freedom and choice do change things for DA and CDC.
“The same goes for auto transfers in that we do want to find ways of dealing with small and stranded pots.”
Altmann’s focus on improved member experience also means we are unlikely to see any rapid hikes in minimum contribution rates for those being auto-enrolled.
This is something that many believe needs to happen sooner rather than later if AE is to be deemed a success.
However, Altmann favours a more gradual approach.
“I’m a big fan of auto-escalation and I am under no illusion that current contribution rates will be sufficient,” she says.
“I understand the industry wishes to have a lot more contributions going in now but you don’t want to frighten the horses. Opt-out rates have been so low that it shows that, so far, the public want to be in pensions.
“Yes contribution levels are low but if people are comfortable with what is going on and we are starting to see more wage growth, then they will have the capacity to have a bit more taken out.
“If they are satisfied with their experience then they will stay within it.”
However, she adds that there is nothing stopping scheme members contributing more to their pension if they wish.
“This whole process is not just about the employer and the government – it is also down to [the] industry and, of course, the member themselves to want to be part of it,” she says.
So, for now, it appears as though the industry and employers will be granted some respite from any big policy changes. It is to be hoped this time will be used to really cement the success of AE.
“We want to give the industry time and ensure they are looking after people well so they don’t reject the experience,” she said. “We won’t get people falling in love with pensions but you don’t want them to reject it.
“The employer contribution is very important but I am aware we have contracting out ending next year as well as all the new flexibilities coming in. While this is all good for the member, industry and employer, if you keep throwing things at people then that is not good.”