Altus

Personal Accounts

The well publicised pensions crisis has generated a continuous stream of legislation in recent years – one new piece of pension regulation per week by some estimates. The most high-profile initiative in recent months has been Personal Accounts for which the foundation was laid in the Pensions Act 2008. Whilst PADA may or may not get Personal Accounts off the ground before another change of government and/or policy, other measures introduced by the Act will arguably have a much greater impact on the pensions landscape.

For example, automatic enrolment of new employees into qualifying pension schemes from 2012 will present a big challenge to current pension operations. With some very demanding timescales which require the whole process to be completed within 14 days in most cases, administration will need to be slick. Add in a proposed division of responsibilities between employer and scheme plus new qualification and opt-out rules (which will inevitably become more complex yet) and it’s clear that new automated solutions will be required.

Mandatory contribution rules will bring another new challenge with a step change in the scale and nature of transactions flowing around our pensions machine. According to optimistic estimates there may be a million new schemes after 2012 with up to 10 million new members contributing and they represent a new type of business. Given the target market of low-earners and the increasingly transient nature of the workforce, this will inevitably be volatile business with very low margins. All of which suggests commodity and standardisation and we expect to see standards emerge in this area over the next few years. Whether Personal Accounts mops up all of this business or not, it seems inevitable that the mechanisms for dealing with contributions will need to become more automated and standardised and will find their way into all corners of the industry.

Similar issues of scale and volatility will lead to automation in new areas too. With something like 200,000 business start-ups in an average year and a 5-year survival rate of between 10-40% (depending on which statistics you trust), workplace pensions contributions are clearly going to require some serious monitoring post-2012. Whilst that unenviable task will fall to TPR, expect to see a lot more traffic between the regulator, schemes and HMRC to keep on top of it.

In short, there will soon be a whole lot more data flying around the world of pensions and the industry better start thinking about standards for dealing with it before it gets swamped.