We support the principle of automatic enrolment. However, it won’t be enough on its own to guarantee the success of the pension reform policy. Automatic enrolment relies on apathy whereas those who are engaged with their pension saving are more likely to take action to secure a better income in retirement. It’s therefore critical that we promote a ‘savings culture’ among the UK workforce.
To do this we need to make sure workers are confident about their pension saving. We also need to make sure employers are confident about dealing with the personal accounts scheme or other private pension schemes, as some are worried about the possibility of excessive work or future litigation by workers or the Pensions Regulator. The government should lead the promotion of pension saving, and should start now, ahead of 2012.
Clarity for employees
Good clear communications for employees are vital. The FSA and the government should deliver clear generic initial guidance about whether it pays for the member to save. This will help to create the right culture for UK savers, also addressing the potential conflict with pensions credit by highlighting clearly (possibly through a traffic lights format) who should opt out of automatic enrolment.
All employee communications – whether initial or ongoing – provided by government or the industry, should be clear and accessible. Although we anticipate that by 2012 many members will feel comfortable with, and even have a preference for, electronic communication, we strongly feel that all members should be given the option of paper-based communications if they prefer, with no extra cost.
Communication with employers
Automatic enrolment of all workers is the biggest impact of pension reform policy for employers. There should be communication to employers that clearly outlines their new employer pension responsibilities. Primarily, it should highlight what action those employers who have existing schemes should take to make sure their schemes meet minimum criteria. For those employers who don’t currently have schemes, it should highlight their choices, giving equal weighting to both personal accounts and private pension schemes.
The private pensions market is a proven success, with nearly three million people saving around £3 billion a year in workplace personal pensions*, and tens of thousands of small and medium-sized businesses contributing to their employees’ futures. These pensions are the reason that millions of people have access to products and advice that they wouldn’t otherwise have and that the ‘savings gap’ isn’t wider than it is.
It’s therefore important that any public information reflects that personal accounts complement rather than compete with the existing market.
Auto-enrol now
There are 4.7 million people currently working for employers who offer a pension scheme but who aren’t members**. If someone waited until 2012, rather than started saving now, they could lose 15%† of their retirement income.
Automatic enrolment under group personal pensions has been given the green light, but only from 2012. Employers can use streamlined joining and other techniques in the run-up to 2012 – methods just as effective as automatic enrolment. This may be about targeting employees who have previously not voluntarily joined the scheme. It may also be about extending the offer to classes of employee or worker not previously included, but who will be ‘caught’ under the new legislation.
Enrolling tranches of the workforce ahead of 2012 can achieve many things. It eases the cost for the employer, and it also sends out the signal to the workforce that the employer has chosen to help them save for retirement, rather than being ‘pushed into’ it by the government. And, after all, that goes back to the basics of why employers offer pensions – to retain and reward staff.
*ABI, 2008
**ABI, 2008
†Assuming saving for 43 years
