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The success of the UK’s occupational pension scheme has been held up as a success story which Guernsey soon hopes to follow.
When it started over a decade ago just £19 was deposited on launch day. Fast forward to today it handles over £40bn and is one of the largest UK pension schemes with millions of members.
With thousands in Guernsey not offered a private retirement plan the States agreed in 2022 to make it a mandatory requirement, but employees can opt out of the scheme which will see individuals and companies contribute to the pot.
From July, any business with 26 or more employees must automatically enrol eligible employees into an approved pension scheme.
Three months later the requirement extends to those with 11 to 25 staff and more will then also be brought into the net until everyone is covered by October 2025.
In a Chamber of Commerce conversation between Helen Dean CBE, who helped created the UK’s equivalent from scratch, and Peter Neville, Chair and founder of the financial inclusion charity Guernsey Community Savings,
“We were faced with all of the same problems in the UK... we could see if we didn’t do something we were going to have a lot of financially excluded older people who wouldn't be able to participate in the economy, which would be bad for everyone,” Ms Dean said.
She said the alternative was increasing the tax burden on working people, which would’ve cause intergenerational strife, or allowing poverty – both of which were politically unacceptable.
“Getting people to save became the thing we really needed to do,” she said, while also managing employers’ concerns which she said weren’t centred on contribution costs, but the administrative burden created.
Now she says the scheme is well accepted by UK firms including small businesses as they aimed to ensure it didn’t take more than 10 minutes per month in admin.
Making it a simple extension of payroll was a way to make sure businesses didn’t feel they had to act as a pension manager. 80% of small businesses now use the UK scheme.
“Payroll was well understood... it was really important for us that our employers don't feel they need to administer, and treat it as just a contribution through payroll.... the trick is to think really hard about the employer customer, you just have to be very sensitive to them when they could be doing admin on the kitchen table rather than having an HR director or payroll manager in the business.”
Pictured: The secondary pensions scheme launches in just over two months.
Ms Dean said the best way to encourage people to start saving is to “shift the burden away from them as far as possible” by allowing auto-enrolment and simple investment packages that make it possible for the user to “not have to do anything”.
But she said interest in the retirement scheme begins to peak when money in the pot starts to grow, and technological developments in AI and data would help to reduce barriers to many people getting bespoke financial advice which would normally be prohibitable expensive.
“Technology will be the saviour here, we’ve got to find ways of bringing down the cost of it... the most important thing to do early is get them saving, get them in the habits of saving, and you will find then there's a cultural shift.
“They become less interested once in enrolled, but once the pot grows they become more interested. Engagement also improves through responsible investment which captures imaginations.
“You can't do this too early, just allow the system to grow, allow the balances to grow, and allow your community to get into the habit of saving.”
Sean Gillease, Managing Director of Sovereign Pension Service, which is the trustee and administrator of the secondary pensions scheme locally said he was given the opportunity to start saving when he entered employment, but wouldn’t have done so without his employer leading on it.
He said now “everyone will be given that same opportunity and same platform to save”. The initial response and take up for the product has been positive, and he said those participating would see an “extremely positive impact in the long term”.
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.
He said as the scheme grows and evolves more opportunities to diversify the investment model will come.
Deputy Peter Roffey, President of Employment & Social Security which successfully steered the pensions policy through the States, opened the event by saying reducing real and relative poverty was the aim.
He said pensioners are more likely to experience relative poverty and the stereotype of affluent pensioners is “misleading”. An occupational pensioner is the most likely avenue to bring people up out of poverty, and he said even an extra £100 per week is “a real game changer” for reducing States support and allowing discretionary spending.
“I really hope days are long gone when people believed there was no such thing in Guernsey”
He said the local scheme has been heavily inspired by the UK’s workplace pension offer, which he said has been “an enormous success”.
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