From the blog: In his recent article, ‘A pension system to support everyone’, pensions minister Guy Opperman highlights the impressive achievements of pensions auto-enrolment. It’s a huge success story for both government and the pensions industry.
The minister’s article also claims that AE is “generating a new savings culture across the UK”. This, I suggest, is a claim too far.
New enrolments since 2012 are heading towards 10m people, with female participation now at 80 per cent of eligible workers. Such figures exceed the expectations of those who invented and took charge of implementing the policy.
Can it be right that savers aren’t free to select their own provider?
The minister’s article claims that auto-enrolment is “generating a new savings culture across the UK”. This, I suggest, is a claim too far.
The evidence so far points to the overwhelming majority of new enrolees having minimal engagement or understanding about their new pension arrangements. This isn’t to deny what’s been achieved so far.
Rather it means that auto-enrolment generation one has laid an essential foundation for auto-enrolment generation two, which must indeed now focus on building and sustaining a genuine culture of saving among the UK’s workforce.
Next phase of AE should focus on truly engaging savers
The task now is to get beyond the current reality that means many new savers are ‘triple defaulters’: they join a scheme by default, make the default contribution and accept the default investment choice.
A pensions system to support everyone
Having spent nearly three months as the minister for pensions and financial inclusion, I have been struck by how much we have recently achieved to help the public to think more smartly about retirement, but also the challenges we must face in improving our pensions saving system.
If the power of inertia was the dominant behavioural logic of auto-enrolment generation one, then the power of choice and competition, good governance and smart communication must provide the logic for what follows.
Guy Opperman’s full title is minister for pensions and financial inclusion, which is highly appropriate given the direction of travel now needed in pensions policy. Moving towards a system in which savers feel engaged and included is no small challenge, but the answers are all around us.
Both here and overseas, there are numerous inspirational examples of strategies and solutions to address saver disengagement. And the evidence is that people want to be more involved: recent research from provider Aegon suggests 72 per cent of UK savers in a workplace scheme want to personalise some or all aspects of their pension to suit their individual needs.
Can it be right that savers aren’t free to select their own provider? A ‘market’ where the customer has no choice is unlikely to draw the best out of anyone. But choice, though essential, won’t be sufficient. Scheme governance arrangements that inspire the confidence of savers and give them opportunities to be involved must be another core building block of the second auto-enrolment generation.
Finally, young savers in particular want to know where their savings are invested and what impact they’re having on the world around them. Switching on Generation Y means telling stories they can relate to about the assets underpinning their future, and it means investing with a focus on the long-term environmental, social and governance factors that protect financial returns, while enhancing savers’ broader quality of life.
Much has been achieved, but there’s much more still to do. We don’t yet have that all-important culture of saving in the UK, but we can see a path to get there. It’s steep, but certainly not impassible.
Catherine Howarth is chief executive of campaign group ShareAction
