A piece of European legislation is posing a big headache for government and industry in working through the intricacies of pensions reform policy.
The culprit in question is the Distance Marketing Directive (DMD), as this stops employers automatically enrolling their employees into contract-based pension arrangements, such as group personal pensions (GPPs) and group stakeholder plans (GSHPs).
No auto-enrolment means, on the surface, that these schemes would fail the new exempt scheme test under pensions reform, and employers instead would have to offer a trust-based scheme or (more likely) pay into personal accounts for their employees, come 2012.
That's an unacceptable outcome.
GPPs are already a tremendous force within our industry, and if we roll on five years to 2012, they will make up an even greater proportion of private pension savings. So it's vital we find a way around this legislative glitch.
But the big question is how. Well, it's definitely not insurmountable. I think there are several things the Government could consider more closely.
First of all the DWP could look at DMD itself, and whether UK legislation could be re-written to allow auto-enrolment into GPPs while still meeting the principles of the DMD.
Second, employers can enrol their employees into their GPPs as long as they get a signature from the employee giving their prior consent. So, other solutions may centre on how to get that signature. Permission could be incorporated into contracts of employment for new employees. But changing contracts for existing employees may be too difficult to do in practice.
I think the answer could be in adapting the ways employers already work around auto-enrolment and GPPs. For example by using tried and tested processes such as streamlined joining, where employees have to sign a form giving their prior consent to joining the GPP, but not necessarily complete a full application form.
Or by setting out what employers have to do to inform employees about the pension scheme, making sure employees know they can join up if they want to do so, but stopping short of outright encouragement to do so.
In considering this area though, the DWP should be aware it's dealing with diverse employers operating in diverse industries with diverse workforces. We should strive for simplicity through a "one size fits all" approach wherever we can, although practice tells us not all employers - or employees - think alike.
But allowing GPPs to pass the exempt scheme test is a problem that has to be fixed. That's the simple reality. The alternative is just unthinkable.
Rachel Vahey is head of pensions development at Aegon Scottish Equitable.The views expressed are those of the author and not those of the company she represents.IFAonline
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