Secondary pension schemes are key in preventing our ageing population from living in poverty in future years. At our most recent Chamber Lunch, key speakers delved into what the new pensions law means for employers and how they can prepare for the change.
From July 1, large businesses will be required by law to enrol their employees in either the States’ Your Island Pension (YIP) or equivalent, with all businesses needing to enrol by October 2025.
Helen Dean CBE, who helped created the UK’s equivalent secondary pension scheme from scratch, and Peter Neville, Chair and founder of the Guernsey Community Savings took part in a fireside chat at Chamber Lunch to discuss the lessons learnt along the way.
Ms Dean, who has been with Nest since its launch in 2010, explained how Guernsey’s process will be simple for employers to manage, and why the new scheme is vital for our population.
She said the best way to encourage people to start saving is to shift the burden away from employees and employers as far as possible by allowing auto-enrolment and simple investment packages that make it possible for them to do the minimum.
“Employers worried about pensions becoming an admin burden – they didn’t want to become pension providers. We set a challenge for employers to spend no more than 10 minutes a month, which simply involves making a contribution through payroll.
Fortunately, Nest has had an extremely positive response from those who utilise it, which Helen thinks will be replicated in Guernsey.
As it stands, three out of four people in Guernsey do not qualify for the States pension, and not only that, it is estimated that around 60% of the working age population have no personal pension provision at all.
“If we don’t act now, we will have a lot of financially excluded people who wouldn’t be able to contribute to the economy in the future. That often means tax increases for the working age population, which leads to generational strife or significant numbers of the elderly population in poverty.”
“As we get more people into the habit of saving, there is a cultural shift in attitudes towards pension provision. As account balances grow, they get a sense of pride and curiosity in what they’re saving for.”
The States has launched Your Island Pension (YIP) as an independently governed, accessible on-island pension provider for employers to use, but they can also choose an alternative provider if they prefer.
The structure of Your Island Pension is similar to what was first created in the UK, with easy enrolment and administration management, as well as options for members to choose riskier or conventional investment products. A portal will also offer tools for users to become informed and calculate how much to contribute for specific retirement ages.
As the scheme grows and evolves more opportunities to diversify the investment model will come.
Employment and Social Security president who opened the event Peter Roffey highlighted the importance of future-proofing our island for the retirement age population.
“There are two ways to encourage people to contribute to a pension. The first is by incentivising savings by making pension schemes tax efficient, and the second is ensuring that all employees have access to a pension scheme that allows them to enjoy the contribution they make.”
“Poverty, even relative poverty, is miserable, and we don’t want our community to face that when they grow old. The Secondary pension scheme is not a silver bullet, but it is a massive step in the right direction.”
More information on the States of Guernsey secondary pensions scheme can be found here.
