Evidence from PFS Members: The Impact of the NEST Annual Contribution Limit and the Transfer Restrictions

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1 February 2013 Evidence from PFS Members: The Impact of the NEST Annual Contribution Limit and the Transfer Restrictions Summary The PFS is the leading professional body for the UK financial planning profession. A key target market for financial advisers will be small- and medium-sized firms which are outside the scope of Employee Benefits Consultants. We undertook a survey via a standard to all qualified PFS members. Fieldwork was conducted in late-january and early-february 2013, and 699 members responded. Responses to the survey are as follows. In many cases the views are quite decisive: 6 believe that the annual contribution limit and the transfer restrictions placed on NEST are or will influence employers decision making 47% believe there is evidence of employers feeling unable to choose NEST for their workers due to the annual contribution limit and/or the transfer restrictions. Though neither d nor d with this statement. 70% believe there is evidence that employers (of any size) are prioritising or will prioritise a single scheme solution for automatic enrolment. 86% d that NEST members should be allowed the same transfer rights as members of other occupational pension schemes. 72% believe that NEST should be able to participate in an automatic transfer system. However There were almost equally split views over whether the annual contribution limit should be increased or removed. 40% believed it should be increased, while 36% believed it should be removed. 23% said neither. About the CII/PFS: Standards Professionalism Trust The Personal Finance Society (PFS) is the leading professional body for the UK financial planning profession. Its mission is to lead the financial planning community towards higher levels of professionalism, exhibited through ethical and behavioural standards, skill and technical knowledge, to the ultimate benefit of the profession and the consumer alike. The PFS is active and increasingly influential in driving the professionalism agenda on behalf of more than 34,000 members. The PFS is part of the CII Group, the world s leading provider of professional training, qualifications and thought leadership to the insurance and financial services profession. The CII has been at the forefront of setting professional standards for over a century and now has in excess of 100,000 members in 150 countries. The Chartered Insurance Institute

2 Introduction: The Importance of Financial Advisers Thank you for soliciting our views towards the Annual Contribution Limit and Transfer Restrictions for the National Employment Savings Trust (NEST). Professional financial advisers will be a vital stakeholder in the implementation of the Government s auto-enrolment policy. Their main target clients will be small- and medium-sized firms which are outside the scope of the Employee Benefits Consultant market. Unlike the large firms, most micro and small SMEs that will be implementing a pension scheme for auto-enrolment will be doing this for the first time, and have not yet really considered the implications of implementing NEST. We carried out research in mid-2012 of employers of this size and found that financial advisers will be the biggest source of external, professional advice in this regard. Question: Which TWO of the following are you most likely to use as sources of external advice when choosing a pension for the employees in your firm? 55% Source: Advice Needed! A Research Report into Small Firms' Readiness for the Workplace Pension Reforms, CII Issue Paper, June _small_business_response_to_auto-enrolment 16_pages_final_.pdf 48% 47% Total SME employers Micro: 1-9 employees Small: employees 26% 24% 33% 21% 30% 13% 12% 18% 10% 10% 8% 7% 7% 8% 6% 6% 5% 17% 15% 2% IFA Accountant Pension provider Employee benefit consultant Trade/ industry body Bank Solicitor None: prefer to go it alone More recent research conducted by NEST has echoed these findings. In the NEST Insight report published on 30 January 2013, IFAs were the most popular source of advice for 68% of firms of employees, by a considerable margin with the next most popular being pension providers at 35%. According to the last PFS annual member survey, 41% of PFS members have experience giving advice to employers, combining 16% who are already active in the employee benefits market with another 25% who say they have recently started discussing the implications of auto-enrolment with clients. This provides a strong enough proportion of advisers who may have already observed the complexities stemming from ACL/TR constraints. About the Survey We believed that an opinion survey of our financial adviser members would provide useful evidence for your policy process, drawing on the recent experiences of these practitioners. We undertook a survey, based on the questions in your consultation paper, for a week in late-january and early-february 2013 via a standard to all qualified The Chartered Insurance Institute 2

3 PFS members. Members were asked if they d with a range of statements as this presented the simplest approach in the timescale given. 699 members completed the survey. This represents 5% of those members who have experience giving advice to employers. Considering the time of year, the uniqueness of the issue, and the short timeframe, this is a very positive response rate. Survey Results 1. Influencing Employer Decision Making Statement: the annual contribution limit and the transfer restrictions placed on NEST are or will influence employers decision making. 6% 14% / 11% 24% 45% 7% 21% Don t know, 4% 13% 34% Statement: there is evidence of employers feeling unable to choose NEST for their workers due to the annual contribution limit and/or the transfer restrictions. / The Chartered Insurance Institute 3

4 Statement: there is evidence that employers (of any size) are prioritising or will prioritise a single scheme solution for automatic enrolment. 4% / 15% Don t know, 3% 23% 47% 2. Costs of Implementing Auto-Enrolment 7% 20% Don t know, 2% 16% Statement: the annual contribution limit and/or the transfer restrictions on NEST is adding to the cost to employers of implementing automatic enrolment. / 33% Statement: the impact of the annual contribution limit and/or the transfer restrictions on employer decisions is leading to or will lead to sub-optimal pension outcomes for workers. 7% 14% / 18% 21% 3 The Chartered Insurance Institute 4

5 16% Don t know, 3% Statement: removal of the annual contribution limit and the transfer restrictions altogether should take place at the end of staging (February 2018). / 17% 33% 3. NEST Policy Options Statement: NEST should be able to participate in an automatic transfer system. 8% / 10% 32% 40%, 7% / 4%, 4% Don t know, 0% 41% 45% Statement: NEST members should be allowed the same transfer rights as members of other occupational pension schemes. The Chartered Insurance Institute 5

6 Statement: Bulk transfers into NEST should be facilitated. 16%, 11% 20% /, 18% 34%, 12% Statement: the annual contribution limit should be increased, not removed. 27% 28% / 23% The CII is the world s leading professional organisation for insurance and financial services, with over 100,000 members in 150 countries. We are committed to maintaining the highest standards of technical expertise and ethical conduct in the profession through research, education and accreditation. Our Charter remit is to protect the public by guiding the profession. For more information on the CII and its policy and public affairs function, including examples of the range of issues in financial services and insurance that we cover, please see: Please do not hesitate to contact us: Laurence Baxter, Head of Policy and Research, tel ; laurence.baxter@cii.co.uk The Chartered Insurance Institute 6