Editorial: A flurry of innovation in defined contribution scheme design has been catalysed by the pension freedoms. Part of this remoulding is a stronger focus on ‘good outcomes’ and working backwards from there. But what about contributions?
Part of this remoulding is a stronger focus on ‘good outcomes’ and working backwards from there. But what about contributions?
I fear we’re going to be held at the ‘output’ end of the debate for some time yet, as these are complex areas with few viable solutions on the table so far. This risks taking much-needed attention away from contributions – the most powerful driver behind good outcomes. And while auto-enrolment has taken the horse to water, it will stay thirsty if left to its own devices.
Illustration by Ben Jennings
We know people need to save much more, but compelling them – and employers – to do so is being kicked into touch by some.
For the DC-only crowd the challenge is great. At a panel discussion earlier this week, Redington’s Rob Gardner described how most millennials spend more than they earn. Factor in student debt and saving for house deposits, and it’s clear ‘nudge’ tactics will struggle to get around the fact that there’s nothing left in the kitty.
There’s also an issue around perceptions of pension saving. People view themselves more as cash ‘savers’ than ‘investors’, meaning the gift of exponentially boosting what they pay in could be lost on most.
One of the greatest risks to member outcomes is the time that will likely be spent debating outcomes from the wrong end of the journey
We’ve heard this week that the frontrunner in the government’s tax relief review is the flat-rate model, along with its more easily digestible BOGOF-style matching messages, which could go some way to alleviating this.
And there’s no time to waste. Gardner explained that someone who starts saving into a pension in their twenties can expect a tenfold return; those starting in their fifties will luck out on just twofold.
One of the greatest risks to member outcomes is the time that will likely be spent debating outcomes from the wrong end of the journey.
The urgency to turn the page on the question of adequate contributions is great and cannot afford to be left to drift years into the distance.
And speaking of turning a page, this will be my last issue of Pensions Expert as I head onto pastures new at the FT. It’s been a hell of a ride – but for pension reform that ride is far from over.
Maxine Kelly is editor at Pensions Expert. You can follow her on Twitter @MaxineEK and the team @pensions_expert.
