Analysis: Savers have long remained detached and bemused by their pension arrangements. Indeed, the success of auto-enrolment has partly depended upon consumer inertia.
Platform provider Hargreaves Lansdown has identified a ‘boredom threshold’ of £5,000, the point in accumulation at which a saver’s interest in his or her pension jumps.
Efforts to engage savers with their pension continue at an unrelenting pace, with the Association of British Insurers going as far as to urge young savers to ‘love your pension’ in a campaign launched this week.
I don’t think people like pensions defined as something where they have to lock up money for a long time and can’t get access to it
Gregg McClymont
While a lack of interest is certainly an issue for many savers, trust is also an issue. As part of its Retirement Outcomes Review, the Financial Conduct Authority found that a lack of trust in pensions is unduly incentivising full pension pot withdrawals, with savers putting their money elsewhere.
The watchdog attributed this lack of trust to “a range of factors, including past pension scandals (where consumers tend not to distinguish between defined benefit and defined contribution) and frequent changes to pension rules and tax treatment”.
Last year, the Financial Times reported that only 23 per cent of consumers held faith in long-term savings products, such as pensions, according to a survey by consumer group Which?.
In contrast, the same survey found that 40 per cent of consumers trust day-to-day banking.
Consumers dislike pensions
In June, the FCA’s proposals included providing three default investment pathways to help guide drawdown customers, along with single-page ‘wake-up’ packs when members turn 50.
Speaking at an Institute of Chartered Accountants of Scotland event, Gregg McClymont, director of policy and external affairs at mastertrust provider B&CE, cast doubt upon the idea of souping up engagement with individuals.
“There’s not a pensions system in the world which is driven by individual engagement,” he said.
The mid-life MOT is an idea that has been championed by industry experts and government as a way of helping consumers to review and understand their financial affairs.
More than mistrust, however, the former shadow pensions minister said that many consumers harbour outright disdain for pensions.
“They’re not liked as a product,” McClymont said. “I don’t think people like pensions defined as something where they have to lock up money for a long time and can’t get access to it,” he added.
Define value for money
Consumers would benefit from greater transparency with respect to their pension providers, according to experts.
Earlier this year, campaign group ShareAction published research indicating that independent governance committees are failing to properly disclose the value for money offered by their respective providers.
IGCs have a duty to scrutinise the value for money of their providers’ workplace personal pension schemes.
“Everyone who manages pensions money in auto-enrolment should be governed by trustees whose only duty is to deliver in the members’ interests,” McClymont said.
Josephine Cumbo, pensions correspondent at the Financial Times, agreed.
“Right now there isn’t even a definition for value for money that every IGC is working to,” she said.
“That is at the heart of what pensions should be all about. And that should be about setting governance, and making sure that it’s strong,” she added.
Too much engagement can be harmful
Pension freedoms have added another challenge to managing pension engagement. The FCA found that 1.5m DC pots were accessed by consumers between April 2015, when pension freedoms were introduced, and September 2017.
Chris Curry, director of the Pensions Policy Institute, called for better assistance for consumers, but urged against excessive levels of engagement.
“At the moment, the default is, ‘Well I’ll take it out and put it in a bank account and live on it’. And if everybody does that, that could lead to some really poor outcomes in the future,” he said.
Self-employed do not trust pensions, experts say
Self-employed workers lack confidence in pensions partly because of questions over their affordability, according to experts.
“Investment in particular is a really difficult thing, and may be a double-edged sword about getting people engaged in their investment,” he added.
According to mastertrust Nest, more than 90 per cent of auto-enrolled savers remain in their default fund, leaving investment decisions to their provider.
“When you look around the world, where people come out of defaults and actively invest they don’t necessarily always do particularly well, so I think there’s a real role for the investment and asset management industry,” Curry said.
