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Workplace Pensions - UK - June 2016
Overview
 
What you need to know
The workplace pension market has been given a new lease of life since the introduction of auto-enrolment. Pension providers and advisers are seeing large increases in new business, particularly in relation to group contract-based pensions. While this is all very positive, there is a downside. Providers within the insurance-administered sector are struggling to keep pace with demand, especially now that thousands of smaller firms are reaching their staging dates and looking to set up or buy in schemes.

The capacity crunch within the contract-based sector is benefiting the trust-based sector, in particular master trusts. These have grown in popularity over the past few years. The largest of these schemes is NEST, but there at least 70 others, many of which have yet to sign up to The Pensions Regulator’s new assurance framework. While there is fairly low usage of schemes that are not part of this framework, it nevertheless raises concerns that some employers are using schemes that might not offer adequate protection and oversight. Questions have also been raised about the financial sustainability of master trusts – prompting government plans to strengthen regulation of these schemes.

Against this backdrop, employers and pension providers must manage the planned rises to minimum contribution rates over the next three years, along with any increase in the opt-out rate as a result. Mintel’s consumer research investigates this issue, by assessing current employee contribution rates versus maximum rates potentially tolerated. The survey also reveals the degree to which employees are satisfied with the information they receive from their employer and their scheme in general.

Products covered in this report
There are various types of workplace pension, which can be broadly segmented into two main groups: occupational trust-based schemes and group contract-based pensions.

The focus of this report is on insurance-administered workplace schemes, comprising funded occupational pensions, group personal pensions (GPPs) and group stakeholder pensions (GSPs).

Trust-based pensions
An occupational pension is a scheme organised by an employer, or on behalf of a group of employers, to provide benefits for employees on their retirement and for their dependants on their death. Legally, an occupational scheme is defined as one that has scheme trustees and is governed by trust law and, thus, may also referred to as a trust-based scheme.

Occupational pensions come in two main forms: defined benefit (DB) or salary-related (eg final salary, career average salary) and defined contribution (DC) or money-purchase schemes.

A master trust is a multi-employer, trust-based scheme that differs only from a normal trust-based DC scheme in that it is open to the employees of many employers, the staff of which are all treated equally and follow the same rules.

NEST (National Employment Savings Trust) is a master trust DC pension scheme set up by the government to help employers meet new workplace pension duties. NEST offers low charges (with an AMC (annual management charge) of 0.3% plus a 1.8% charge on new member contributions), flexible contributions and online access. The scheme is run by the NEST Corporation, a non-departmental public body of trustees.

Contract-based pensions
A group personal pension is a collection of personal pensions, arranged by an employer for its employees. GPPs are run by pension providers (usually an insurance company) and managed on a group basis. They may have lower charges than individual personal pensions, because the provider may offer the employer a discount for the volume of policies.

Group stakeholder pensions, also known as employer-sponsored stakeholder pensions, are similar to GPPs in that they are group schemes with the same rules for eligibility, transfers, benefits, contributions and taxation. However, GSPs must meet a set of conditions, laid down by the government, relating to charging structure, penalties and minimum contributions.

All contract-based pensions are DC arrangements.

For more detailed information and further definitions, see Appendix – Additional Product Information.

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