What makes a workplace pension?
‘Workplace pension’ is a term we hear more and more, but what exactly defines a workplace pension?
Whilst all occupational pension schemes are by definition workplace pensions, not all workplace pensions are occupational. With all employers now required to provide a pension under auto enrolment there is a huge rise in workplace personal pensions. Whilst occupational schemes are the DWP/TPR’s remit, workplace personal pensions fall under the FCA.
Workplace pensions are required to have Independent Governance Committees (IGCs) (or Governance Advisory Arrangements (GAAs) for smaller schemes where applicable). Under the FCA’s rules for workplace pension schemes (COPS 19.5) a relevant scheme for these purposes includes a personal pension with direct pay arrangements in place for two or more employees of the same employer. So if you are running a scheme that has a direct debit set up with the employer making a single contribution for two or more employees you are caught by the requirements for an IGC/GAA.
However, in the FCA’s consultation paper (CP 19/10) on publishing and disclosing costs and charges to workplace pension scheme members, the scope is wider.
The DWP already has disclosure rules in force in relation to occupational schemes (SI 2018/233), and these rules only apply to schemes with two or more members. However, the FCA’s recent proposals include requirements for firms to provide information directly to scheme members of any scheme with a direct pay arrangement in place from the employer. By this definition any personal pension with a direct debit from the employer is caught – including direct debits set up for single members.
The number of SIPPs that will fall within this definition will be substantial, and these are schemes that have never before been thought of as ‘workplace’. If the member has themselves selected the scheme, the fact that they have then asked their employer to make contributions (which in many cases will be their own company), surely should not make them ‘workplace’?
In terms of the information that must be provided, it becomes even more apparent that the proposals in their current form are not appropriate for the SIPP market. The draft rules state members must be provided with transaction costs and admin charges for default arrangements (most SIPPs won’t have default arrangements) and each alternative fund option that they could select. Most online providers will have this already on their websites, but the concerning part is that for each option the member should have an illustration of the compounding effects of those costs and charges.
So for a platform SIPP with a few thousand funds, that’s thousands of illustrations!
Clearly having a requirement to provide such vast quantities of information is at best a waste of time, money and effort, but at worse would push those who might have read a sensible amount of information into reading nothing at all. Complying with the proposed rules to the letter will be impossible for bespoke, open-architecture schemes where the investment possibilities are almost endless.
It’s obvious that the proposals have not been written with SIPPs in mind, and I wouldn’t be surprised if there are SIPP operators who are blissfully unaware that they have what the FCA are calling ‘workplace pensions’ on their books. We can only hope that there are enough robust responses for the FCA to change the proposals or we could see an arbitrary move away from direct debit employer contributions to ad hoc payments in order to avoid the requirements. Such a move would be a huge step backwards with much more admin and room for error – hardly a great customer outcome.
The closing date for responses to CP19/10 is 28 May 2019.