M&S sizes up auto-escalation to improve outcomes
Marks and Spencer is considering what auto-escalation could do to improve member outcomes as it looks to raise the quality of its provision following auto-enrolment.
The retailer has been working with its benefits adviser on the impact automatic contribution changes could have on member outcomes, its pensions manager Julie Parker-Welch told delegates attending a scheme design session at the Confederation of British Industry's 2014 pensions conference.
The next parliament will have to look at how we get people beyond the current statutory minimum
She presented the difference between replacement rate and income for a sample employer, showing a large proportion of workers falling short of an adequate final savings pot.
“With a very small change to retirement age and a 3 per cent increase in their contributions, they’re suddenly in a lot better place and then the difference can be around perhaps better investment, etc,” she told delegates.
Parker-Welch added: “We know that people are apathetic… if I change their pension contributions by half a per cent [of pensionable pay] every year they’re not going to say anything, they are not going to do anything but it’s a good thing for them, because they’ll get a good income out of it.”
Also speaking on the panel, Now Pensions CEO Morten Nilsson agreed that the statutory minimum of 8 per cent pension contributions was insufficient, but predicted the minimum level would change.
He added: “Contributions will probably rise. It probably won’t happen until 2017 but 8 per cent in pension contributions is just not enough."
Last week the think-tank Policy Exchange added its voice to the growing chorus of groups – including the Association of Consulting Actuaries and the Organisation for Economic Co-operation and Development – calling for an increase in the auto-enrolment statutory minimum.
Earlier in the day, pensions minister Steve Webb said the government would not be distracted from delivering the reform by debates on auto-escalation or changes to band earnings.
“But clearly I think the next parliament will have to look at how we get people beyond the current statutory minimum,” he added.
Fighting apathy
Governance is crucial, delegates heard, because scheme members are in the vast majority apathetic to managing their financial future.
“They don’t like making decisions, in fact they won’t,” said Parker-Welch. “Don’t assume they will ever make a decision, most of them will make no decisions whatsoever, so you have to do it [for] them.”
M&S set up a pensions committee featuring its chief financial officer, HR director, head of treasury and HR reward official, to work through its governance issues.
“Those minutes will be kept, and they will be there forever,” said Parker-Welch, who underlined the importance of having lasting records of key decisions and the reasons behind them.