We know that our pensioners have plenty of life in them but what about their pension providers? The past two years have delivered some shocks to our industry systems, not least the demise of commission and a recession. On the whole DC pensions have survived in good shape but it is always wise to keep a finger on the pulse. Are we stable and healthy or just ticking along?
I’d say that we’ve come through the worst of it largely because the financial services industry is well schooled in managing risk and because we’re willing to scout for new ideas ad do some investing of our own. We’re also prepared to keep an eye on the changing habits and needs of our clients. The business has a built-in survival ethos.
Nevertheless there are statistics that don’t obviously support this level of confidence. Despite recent NAPF surveys which show that employees
still say a pension is the best way to save for retirement, and that wealth in retirement is more important than good health, the numbers joining
workplace schemes are falling. This has something to do with the lure of consumerism and the cost of living, but it is also the product of lack of
confidence that pensions will provide enough income in old age. Saving for a pension is still seen as important but enthusiasm would be a great deal higher if there were more certainty about the end result.
This is a challenge for the industry and the government. I see the industry entering a new phase of innovation to meet the demands of younger
workers, and those who don’t fully understand that DC pensions need some TLC and a firm commitment to make sensible levels of contributions. Providers and advisers are investing in the business and are seriously aiming to solve issues such as default fund design and efficiency gains through automation. We’re now also talking about a range of workplace savings options and benefits rather than just pensions. Confidence in UK life business is good. It would be even more resilient if we could get more support from government.
Look at the pre-election pension proposals from the two main parties and the word ’tinkering’ springs to mind. We know where this gets us:
usually one step forward and two steps back. Here we are working with employers to build more financially secure futures for millions of UK workers, and what we successively get from government are uncertainty, short-term tactical changes and more complexity. If the pensions business can be summed up in a phrase it would be ’risk management’. This is challenging enough without the added complication of political engineering. The new NEST scheme and autoenrolment into qualifying workplace pensions are going to wash over existing provision in the next few years. It will be some time yet before we know whether they will successfully boost retirement saving or be regarded as an additional burden on business and the taxpayer.
The sensible thing for the pensions industry to do in these circumstances is to make itself even more relevant to the end user of our services. Banks’ use of technology and the internet has revolutionised engagement with their customers and the use of services beyond personal accounts. The pensions industry must do something similar by super-charging members’ engagement with schemes and expanding the non-pension choices available to employers and employees. Pensions – and providers – need to do a bit more mixing with other employee benefits to remain relevant to multigenerational workforces. This will require some ingenuity on our part but no-one can say that there is too little of
that in the business, usually we’re told that we’re too clever by half.
or follow Martin on Twitter: www.twitter.com/PensionsWomble.