We face some of the biggest changes in long term savings policy that the industry has ever seen. But we should look forward to the opportunity this brings, rather than simply seeing challenges.
The introduction of auto-enrolment, the removal of the traditional commission model, the simplification of the state pension and the advent of corporate platforms all pave the way for a very busy few years ahead.
For providers, there is clearly an opportunity to increase assets and, for corporate advisers, the ever increasing need for consultancy. For employers, the opportunity to engage people in the benefits provided and dare I say it for employees, the chance to start feeling better about the years they will spend in retirement.
This last point is fundamentally what it’s all about. People need to make better preparations for retirement and, in turn, they should be able to look forward with anticipation rather than fear. They should be encouraged to feel good about saving, in the same way as they do about spending. After all, saving is largely the preparation for spending.
The introduction of auto-enrolment is a major step towards improving saving. Nest will play a very important role in this, as will current provider propositions. We will have healthy debate about everything including charges, investment defaults, governance, and the nuances of how technology works. These discussions will be important, but they will be secondary to the main agenda ensuring that people stay in when they’re joined.
There is an order to how we need to do things here. If we design the best default fund, at the lowest charge, with the wizziest technology, but the headlines in the paper state that “pension values plummet due to markets” and “half your fund goes in charges,” then people will opt out. I would, if it was all I had to go on.
So our first priority is to start talking up the benefits of saving, and introduce auto-enrolment in a positive light.
No single force can do this. We need providers, advisers, employers, trustees and the media getting behind this message. Let’s start by being a bit more positive about people living longer (or ’longevity risk’ as we like to label it see my point?).
We seem to be the only industry viewing this negatively. It’s a good thing, that people can live longer, happier, healthier lives.
Also, let’s acknowledge that prices charges are already on a downward trajectory through competitive forces. The introduction of the stakeholder charge cap in 2001 marked a step change, but they have only fallen since. We don’t need more regulation.
Falling markets can be a good thing for younger savers, as they will benefit from buying cheaper units that have more to gain over the longer term we’d call that ’pound cost averaging’.
Charges should be competitive, transparent and straightforward. Employees should benefit from any reduction in price that can be negotiated by their employer or adviser
Advice, where available, is a very useful way of ensuring people are making good decisions on how much to pay, where to invest, and the rest.
It may appear expensive to some, but could make a huge difference if it allows people to focus on the important issues and make appropriate choices.
Employer contributions are a good thing it’s ’free money’ and should be taken advantage of. Tax relief is the Government giving something, too. It’s the opposite of tax.
Secondly, we need to apply our expertise in creating the propositions that support this new, positive context, within which employees are enrolled.
Communications need to be clear and straightforward. The benefits and risks need to be illustrated in a way that people can relate to. Ideally, people will be given tools to help them visualise what their lifestyle in retirement might look like, for example what they can afford to do in terms of holidays or hobbies.
Investment defaults should be carefully designed to suit the needs of the workforce, including the ongoing governance and oversight to ensure they remain relevant and innovative.
Charges should be competitive, transparent and straightforward. Employees should benefit from any reduction in price that can be negotiated by their employer or adviser.
Technology should streamline processes for the employer, reducing the administrative burden of auto-enrolment. For employees, we should embrace the power of social media, as most other industries have.
So, to finish where this started. As a nation, we face some of the biggest changes in long term savings policy that the industry has ever seen. We should look forward to the opportunity this brings, rather than simply the challenges. Only then will it be a success.
