UK roundup: Steve Webb, NEST, OFT, Aon Hewitt
UK – The UK's pensions minister has said it is "vitally important" the country's Office of Fair Trading (OFT) deliver its report on competition within the defined contribution (DC) pensions market by summer.
Steve Webb said that the remit of the report, announced earlier in the month and meant to examine if providers were sufficiently competitive and if market pressures were exerted to keep charges low – had been an area of discussion between the Department for Work & Pensions (DWP) and OFT for some time.
Addressing a conference organised by the National Employment Savings Trust (NEST), the government-backed DC fund launched alongside auto-enrolment, Webb also praised proposed state pension reforms as complimentary to auto-enrolment.
"Hopefully, we will be able to introduce the legislation this year and have it on the statute books by next year – that's the kind of timescale we are talking about," he said.
"If you know you are going to get £7,000 a year from the government and you put in 8%," he said of the minimum contribution level under 'soft' compulsion, "for an awful lot of people on a relatively modest wage, you get towards a replacement rate of the sort that you would hope [to have]."
He said that changes to auto-enrolment legislation would be forthcoming to address any problems that had arisen during the initial staging dates, starting in September last year.
"What we will do is practice on the big guys, learn our lessons and then do a round of simplification," he told the conference. "By the time we go the medium and smaller-sized firms, those irritating things that don't need to be there, things that aren't very clear, we can iron out.
"Doing it all in one go, in a year or so, feels like the right way to do it," he said, adding that the alternative was to correct mistakes as and when they were identified, but that this created a "constant flux" of change that was unnecessary.
Discussing pension charges and fees, he said that he welcomed efforts by the National Association of Pension Funds (NAPF) and Association of British Insurers (ABI) to introduce greater transparency, but indicated that he would prefer the two industry bodies to make faster progress in the area.
Webb also said he "very much" welcomed the recent investigation launched by the OFT, which would also examine fees.
"It's something we've worked with them on prior to the introduction of the report and, vitally important, it will be finished in the summer."
The minister was speaking during the launch of a report by NEST, which found that nearly two-thirds of employees believed the introduction of auto-enrolment was a good idea, with the research further showing that a similar percentage accepted 'soft' compulsion meant they could "stop worrying" about retirement planning.
In other news, Aon Hewitt has warned UK pension funds to have contingency plans in place if they are unable to buy out their liabilities - as demand could outpace supply, leaving some funds out in the cold.
At a recent Aon Hewitt conference, 23% of schemes said that they currently expect to secure benefits with an insurer by 2020.
Aon Hewitt’s partner Paul McGlone, said that excluding the largest 200 odd schemes, there is still over £500bn (€610bn) of liability in small to medium size schemes.
McGlone said: "If 23% of those schemes plan to be fully secured by 2020, that, on average, would require, £20bn of placements to insurers for each of the next eight years," adding, "That is possible, although it would mean a big step-up from the current level of activity."
He said past experience in the buyout market has shown the market it has been prone to surges in demand when conditions prove right for schemes but that has also led to bottlenecks. "As a result, not everyone who is interested will get their transaction finished."
Aon Hewitt said it recommended that schemes start preparation well in advance in order to minimise transaction times, but that a low risk plan B is also planned for, which can be run for a number of years until appropriate conditions return.
“Key to this will be not only appropriate asset allocation," said McGlone, "but an efficient benefits delivery model that can ensure the scheme is ready to buyout when conditions change."