Understanding the Future Pensioner
Understanding the Future Pensioner
Welcome to the first of LCP’s Future Pensioner updates, where you'll find campaign highlights including topical blogs covering big picture pension issues that are on members’ minds.
Future Pensioner looks to lead and encourage longer-term debate and discussion around pensions saving and engagement.
To download as a PDF, click on 'Contents' above.
From LISAs to auto-enrolment, understanding how to save for retirement is a complicated business. Are people planning for their retirement, and if so, how? What financial priorities matter most to the Future Pensioner? Have the traditional approaches to providing for retirement now gone and, if so, what have they been replaced with?
The Future Pensioner
LCP's Senior Partner Bob Scott discusses how the firm’s Future Pensioner campaign will look to crank up the volume on future-focused relatable conversations about pensions.
Where we stand
For the pensioners of tomorrow, pensions must be made relevant, today. But how can we help the Future Pensioner achieve this goal? Minimum contributions stand at 5% of qualifying earnings, set to rise to 8% from next year. But it is clear that more needs to be done in the battle to raise awareness and engagement in planning for retirement.
The way forward
Targeted tax incentives are one way of encouraging employee engagement, while greater compulsion in pension saving is another tool for rectifying the imbalance. Lessons can clearly be learnt from the Australian model in this regard. Australians have far more intimate knowledge of the value of their savings, as well as where they are invested, showing that compulsion and simplification go hand-in-hand with engagement.
To achieve greater engagement and understanding of pensions issues especially among the younger generation, as part of our Future Pensioner campaign, we’ve identified four thematic drivers: Education, Savings, Technology and Future Landscape.
"It is clear that more needs to be done in the battle to raise awareness and engagement in planning for retirement."
The first theme focuses on the lack of financial education available on retirement savings issues. A lack of simplicity and plain, jargon-free language is hampering interest. We must empower engagement.
Our Savings strand looks at methods of financial planning, assessing the risks and benefits of ‘my house is my pension’ and seeking to shine a light on options available outside of relying on inheritance. Prepare for tomorrow, today.
Technology is clearly a tool that can and should be harnessed to drive engagement. Workplace devices and pensions apps can simplify this complex area, while appealing to younger generations through mediums they are used to engaging with. Tap into tech.
Finally, our research will track the Future Landscape of pensions in the UK. Demographic trend analysis and monitoring of upcoming legislative changes is central to spotting further opportunities to drive engagement. A new pensions world.
"Technology is clearly a tool that can and should be harnessed to drive engagement."
Employers and legislators must inspire the future pensioner to act now. Most people are comfortable in short-term saving, for a holiday; in medium-term saving, for a wedding or a house. But there is a risk that long-term saving for retirement falls by the wayside because it feels very far away and pension saving sits alongside a long list of other financial commitments.
It’s crucial that we crank up the volume on future-focused, meaningful and relatable conversations about pensions, to help inspire action and create a culture of saving for tomorrow, today.
"Employers and legislators must inspire the future pensioner to act now."
Find out more about our Future Pensioner campaign here.
We want your opinion:
Who should take the lead on inspiring future pensioners to act now?
More than 1 in 5 Britons say ‘My house is my pension'
In this story, Alex Waite asks if people expect their home to fund their retirement....
More than one in five British adults who aren’t already retired (21%) plan to sell their home, downsize and live off the profits as part – or all – of their retirement plan, according to new survey results out today (3 Feb) from pensions consultants LCP and research analysts YouGov. More than one in six (16%) indicate that they don’t plan to retire at all.
The results also show that views appear to change the older people get, with far more of those 55 and over (44%) indicating they don’t plan to rely on their home as their pension (compared with 32% overall). This could either be because the current cohort of those 55 and over have a more generous pension provision, or because people are less willing to give up their home as they get older. Taken together, the survey suggests a dependency upon investing in housing, rather than formal pension arrangements.
This reality comes as the government has recently announced a future expansion of pensions auto-enrolment in the UK, as part of its wider review of the programme’s implementation.
"The survey suggests a dependency upon investing in housing, rather than formal pension arrangements."
It’s fairly common to see a strategy of ‘my house is my pension’, particularly amongst the relatively young.
One-fifth of working adults indicate an intention to use their home as a pension, but this figure drops significantly as people grow older.
"Inter-generational differences in viewpoint may be at play, but the results suggest that financial planning fails to take into account the strength of attachment people will have to their hard-earnt home as they get older.”
"It’s fairly common to see a strategy of ‘my house is my pension’, particularly amongst the relatively young."
The survey also found that:
One-third of Britons (33%) surveyed have indicated that saving money into a pension is not an important financial commitment for them at the present time.
In comparison, only one-quarter (25%) indicated that pension saving was ‘very important’; whilst one in five respondents plan to use their ‘house as their pension’, only one in seven believe that most of the retired people they know have done this, indicating a significant potential gap between perception and reality.
Alex Waite, Partner at LCP, said “Despite all the progress which has been made in raising awareness and understanding of the importance of retirement planning and savings strategy, this research shows just how far there is still to go."
"Of course, there will be those who want to go on working as they get older, perhaps on a part-time basis, but even in these cases it is important to think ahead. There is far too high a proportion of UK adults for whom long-term planning is not a priority at all, and there appears to be an over-reliance on home ownership as a sole or primary means of retirement.”
"There is far too high a proportion of UK adults for whom long-term planning is not a priority at all.”
About the survey
All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,018 adults, of which 1,447 are not retired. Fieldwork was undertaken between 15th-16th November 2017. The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).
Join the debate:
Should members be thinking of investing in property as part of their retirement plan?
Here we look at financial education, from the use of plain language to helping people get in tune with different savings concepts like the power of compound interest. Is the industry doing enough, at the right time, to help make pensions accessible and engaging?
"I’d invest it in something sensible"
LCP Senior Consultant, Helen Stokes, discusses how to get people engaged with their pension scheme.
In this blog, Helen Stokes shares some of the conversations she’s had with DC savers and discusses ways we can help people understand the advantages of saving via a pension scheme.
We surveyed DC savers on one of Europe’s busiest high streets to find out what’s stopping them doing more with their pensions and asked, but more importantly, listened, to what they had to say – some of which surprised me.
As an industry, we know that pensions are often seen as “scary”, “too far off” and “too complicated”. But what if savers were gifted a pot of money, say £25,000, to do whatever they wished with, would they use it wisely?
Amongst the expected responses of “Give a bit to the kids”, “Get on the property ladder” and “I’d go on a massive holiday” (gosh, imagine that holiday!), I was pleasantly surprised to hear so many of our interviewees say “I’d invest it in something sensible” or ”I’d put it in a stocks and shares ISA”.
A lot of these people wanted to invest their money – not all wanted to blow it. They wanted to do something sensible with it for the long-term. But none of them made the connection that this is exactly what a pension scheme does.
So, I think there are a few things that we could do better at to help DC savers make the connection, starting with:
Explain that their money is invested
Use language people understand. Let’s stop referring to ‘default lifestyles’ and ‘UK equities'. Explain their pension is invested in stocks and shares but the difference is all the hard work and monitoring is done for them. If you’ve thought about Responsible Investment you might even be able to tell them all the good things their money is doing, such as helping to curb global warming.
"Use language people understand. Let’s stop referring to ‘default lifestyles’ and ‘UK equities.'"
And explain that their pension pot can grow – much more than if they were saving by themselves
A way of grabbing attention is referencing pounds and pence…Let’s take the average UK worker earning £27,000 a year. Using the current auto-enrolment contribution rates as a guide, if they had invested 3% of their salary (£67.50) each month in a stocks and shares ISA over the last 5 years they would have around £7,400 in their pot today.
If they’d invested the same 3% a month in a pension it would only cost them £54 as the tax man would pay £13.50 in tax relief. And their employer would pay at least a further 2% (£45) which means there would be £112.50 invested each month.
If that money was invested in the same stocks and shares as the ISA in the same time period, they would have over £12,500 instead. That’s nearly double the amount than if they’d done it themselves in an ISA. Do people understand that there is this much free money to be had?
Let’s take responsibility to make sure people understand that their pensions are investments, that they can grow and that there are significant advantages to saving for the future in a pension scheme.
"Let’s take responsibility to make sure people understand that their pensions are investments."
We will be sharing more insights from our conversations with savers over the coming months. Watch this space…
Let’s go back to basics on pensions talk
LCP Partner Stacy O'Sullivan says lets go back to basics on pensions talk.
Monday 7pm. To my one year old “what story would you like tonight Kitty?” “Baaa baaa”.
Tuesday 7pm. “What story would you like tonight Kitty?” “Baaa baaa”. Sigh.
Wednesday 7pm. “Please Kitty any chance of anything other than baa baa black sheep?” “Baaa baaa”.
As I settle into my 30th consecutive night of singing Baa baa black sheep and I let the short, simple words wash over me, I find myself wishing ‘If only all the things I read today had been so straight forward’.
As a DC pensions consultant, my day is often spent battling through pages of investment reviews, The Pensions Regulator (TPR) guidance and deciphering member booklets. Much of what I review is written for members by technical experts who are more concerned with meeting legislative requirements than empowering and educating members.
As an industry, we all recognise the power of plain English – NEST first produced their well-received phrasebook in 2012, but what has happened since then? Er…. well not a lot actually.
We all still use inconsistent, baffling language to describe simple concepts. Annuity, diversification, accumulation, decumulation (seriously?), crystallisation….the list goes on. With roughly 1 in 20 adults in the UK having the literacy and numeracy levels of a 5 year old* is it any wonder that people are scared of engaging with their retirement savings?
"We all still use inconsistent, baffling language to describe simple concepts."
At a recent member focus group, I was surprised at how short the window to engage actually is. This group told me that we have 2 minutes max to grab their attention before they file things in the ‘too complicated’, ‘too scary’, ‘too dull’ folder. They never read benefit statements, haven’t logged on to check their pension account and have no idea about what financial position they’ll be in when they stop working.
As an industry we need to ditch the acronyms, stop the jargon and make a commitment to say what we mean to help people understand their pensions.
Let’s face it, would my one-year-old still be requesting baa baa black sheep if it were “baa baa black ovis aries, have you any wool? Affirmative, affirmative, three receptacles sufficiently adequate”?
"As an industry we need to ditch the acronyms, stop the jargon and make a commitment to say what we mean to help people understand their pensions."
I doubt it. Let’s get back to basics so we can move forward positively and inspire action.
Read more about how we inspire action with our member communications and listen to our own Hayley Williams talk about how LCP Horizon helps trustees and pensions managers to boost engagement with their DC pension scheme and support employees as they approach retirement.
Keep an eye out for my second blog in this series that looks at how to engage the disengaged member who’s totally turned off by pensions and how we can help get them back on board.
Our DC experts are always thinking about how to engage members . To find out more speak to one of our DC team today!
And check out our latest DC update.
Pints and Pensions – Engaging Millennials
In this blog, LCP Consultant James Haggon talks about engaging millennials with pensions.
I was surprised recently when, for the first time since I started working in the industry, one of my mates started asking me about his pension while we were in the pub. I’m usually met with glazed eyes when I broach the subject of pensions with friends, so a proactive question from a fellow millennial was a first! There’s a common misconception that millennials don’t care about saving for the future, which in lots of cases simply isn’t true.
The research is starting to stack up to show they do care, and do save as shown by PLSA’s research.
But what quickly became clear while I was chatting with my friend was the lack of understanding over how savings products (including pensions) really work, and that conflicting financial obligations is a common conundrum.
So perhaps the best way to help this demographic is to make savings goals personal, simple and achievable.
"There’s a common misconception that millennials don’t care about saving for the future, which in lots of cases simply isn’t true."
Here are a few simple – and potentially powerful – ideas to engage those born between the early 1980’s to the mid-1990’s when it comes to their pensions and retirement savings.
Help make short, medium and long term savings meaningful
I’ve read lots of articles about millennials saying it’s too hard to save for retirement, and they are far more concerned about saving for their next holiday. Rather than seeing this as a negative, see it as an opportunity to begin engaging with the employees of tomorrow. They are saving, enjoying life and experiencing new places – so let’s make it easier for them to save for multiple goals in one place. Retirement may be too far off to visualise, but saving for a home, holiday or wedding may not be. Let’s help them get into the savings habit now.
Auto-enrolment is only part of the solution
Auto-enrolment has been a big success in getting millions saving who previously weren’t doing so, but with contribution rises on the horizon, many are expecting opt-out rates to increase. Why? The initially low opt-out rates are most likely due to the minimal impact on take home pay. When the contribution increases to 8%, it could be seen as taking away valuable spending money. Simple, personalised communications are essential to help millennials understand the benefits of long-term saving.
Help millennials access information they need
To get people to really engage with their future finances, we need to make access to pensions as easy as accessing your current account through your banking app. Other industries have cracked this, and our market is slowly catching up.
Technology that allows employees to link both personal and workplace savings is becoming more popular and easy to access, and the recent introduction of ‘Open Banking’ in the UK promises to accelerate the range of innovative options available. Letting people see their finances in the round will help them better manage their short, medium and long term savings.
"We need to make access to pensions as easy as accessing your current account through your banking app."
Join the debate:
What is your top priority to engage members more effectively?
- Less complex communications
- Developing an interactive tool
- Increasing the volume of pensions related communications and information
From dashboards to Augmented Reality – employers and organisations are thinking of different ways to help people understand retirement planning. But do new, largely technology-based approaches to retirement planning work and how can employers best implement tech so employees are encouraged to use it effectively?
Artificial Intelligence: Embracing the future of pensions
LCP Partner, Alex Waite, explores AI and the pensions industry.
In this blog, Alex Waite discusses ways that artificial intelligence (AI) could revolutionise how people engage with their pension and urges the industry to truly embrace the possibilities of new technologies as a way to boost millennial interest in savings.
From the birth of AI in 1952, through the IBM supercomputer ‘Deep Blue’ beating chess grandmaster Garry Kasparov, and to today’s mobile phone personal assistants, AI has remained one of the most exciting and promising areas of science and innovation.
Industries from construction through to retail, logistics and media and entertainment are increasingly seeking to explore the benefits, and it’s high time the pensions industry woke up to the benefits available to pension scheme members and long-term savers.
With personalisation, comes engagement
A personalised approach to pension communications is vital to capture the interest of those people, especially millennials, who are often focused on the here and now, with long-term saving for retirement often at the back of their minds.
AI has shown how personalisation can engage people more effectively in entertainment. Netflix, for example, analyses the data collected from people’s streaming habits to suggest other films they may be interested in watching. The mathematics behind this is part of the actuarial exam syllabus, but is rarely used in practice by pension scheme actuaries. The company is so confident in the interpretations of its data that it is willing to commission multiple seasons of a new show rather than just a pilot episode, based on their findings. If this kind of certainty can be utilised in an industry as volatile as television, why not pensions?
"AI has shown how personalisation can engage people more effectively in entertainment."
Imagine if we in the pensions industry were able to take the data people input in answer to their current financial situation, future goals and aspirations, and offer them a tailor made savings plan to help them achieve that goal, completely automated and explained in just the right way.
Step up investment in AI to maximise the benefits
What’s clear from the history of AI is that there will need to be significant investment in order to fully realise the possibilities machine learning can offer the pensions and benefits industry. Maximising the benefits will require both patience, and a willingness to experiment with ways that the technology can be harnessed most effectively.
When Google introduced speech recognition in 2008 (technology which essentially went on to become Siri and Alexa-style personal assistants), it pioneered a new approach to a system that up until that point had never been cracked. With thousands of powerful computers running parallel networks and learning to spot patterns in the vast volumes of data streaming from Google’s users, the system went from what the company itself described as “fairly inaccurate” to more than 92% accurate within a decade (the app had an 8% word error rate in 2015, according to company statements). Any innovations the pensions industry embraces in this area may need a fairly long time horizon to fully realise the benefits.
If “the juice is ultimately worth the squeeze” then time should not be a prohibitive factor in an industry that stretches out for decades. The continuous improvement of the voice recognition tools discussed above shows that the sooner we get started, the sooner we will see the results filter through to better outcomes for pension scheme members and long-term retirement savers.
"Any innovations the pensions industry embraces in this area may need a fairly long time horizon to fully realise the benefits."
Looking at occupational pension schemes, there’s no reason why pension scheme trustees can’t use big data techniques to go one step beyond personalisation. For example, they can have two very slightly different versions of their member communications, including their website, and test which one gets the best engagement – known as “A:B Testing”. Then, choose the best one; and experiment with changing something else. As well as the precise wording used, font size and even the palate of colours can make a surprising difference to engagement levels.
"There’s no reason why pension scheme trustees can’t use big data techniques to go one step beyond personalisation."
There are already instances where AI is being used to address the growing need for savings advice with the number of people auto enrolled now reaching 8 million. Take chatbot, Ameila, for instance. Amelia is used by Swedish Bank SEB to act as a customer service agent, able to answer some of the more simple queries that people have, with the ability to learn from their human compatriots when referring on a question that they cannot answer. More chatbots like Amelia would be a great step forward for the industry and I look forward to seeing how this concept progresses.
So why wait? In my view, it’s time to begin the journey towards fully embracing AI in the UK pensions industry – to achieve better outcomes for members and savers.
We want to hear from you:
Would your members be happy to talk to a chatbot about their pensions queries?
Driving forward the Pensions Dashboard: Mirror, signal, manoeuvre
LCP Senior Partner Bob Scott discusses driving forward the Pensions Dashboard: Mirror, signal, manoeuvre....
Mirror what the Future Pensioner wants. Greater access to information. All in one place. In simple, easy-to-understand language and format.
Signal what will happen to people’s retirement savings over time. Signpost the compulsory nature of the initiative, as well as how exactly it will benefit people once up-and-running.
Manoeuvre pensions management into the 21st century.
Patrick Collinson, writing in The Guardian, has described the attempt to bring 64 million pension pots under one roof as “one of the most ambitious IT projects ever undertaken in financial services”. Guy Opperman, Pensions Minister, has called it “revolutionary”. But what exactly is the Pensions Dashboard?
Put simply, the Pensions Dashboard is a one-stop digital portal for individuals to access and view their pensions and savings information. From the ‘go-live’ date of 2019, the aim is to have every pension pot in Britain online, allowing people to see all of their entitlements in one place.
"The Pensions Dashboard is a one-stop digital portal for individuals to access and view their pensions and savings information."
The one-job career is – outside of certain industries – largely a thing of the past. The government says the average person has 11 different jobs in their working lifetime. We know that people nowadays typically chart a more varied path through professional life, and tools are needed to reflect this new reality. The Pensions Dashboard will therefore integrate information from pension providers and the government’s National Insurance Database.
This is undoubtedly a great concept. We now need a reinforced commitment from the government to turn this pipedream into a panacea. People are not on their own in having to deal with these issues, but the message that “we are all in this together” must be clearly communicated.
"The government says the average person has 11 different jobs in their working lifetime."
Opperman’s use of the word “revolutionary” shows just how transformative government would like the dashboard system to be. But it is another element of Opperman’s comments that has piqued interest among my colleagues and clients alike.
“A well-designed … pensions dashboard has the potential to enhance consumer engagement and help people make better decisions.”
This strikes all the right chords, and aligns exactly with the aims of LCP’s Future Pensioner campaign. Enticing engagement by empowering people to take control of their future – through better financial education, savings knowledge, use of technology and awareness of the future landscape – is the raison d’etre for Future Pensioner.
Learning lessons from the past
Simplifying pensions by collating information from various providers was attempted in 2001, but the ‘Combined Pensions Forecast’ struggled to get off the ground due to technical challenges. We don’t want the same thing to happen with the Pensions Dashboard, so this cannot simply ‘go-live’ without being properly road-tested. It must ultimately be compulsory, too, or its effectiveness will be lost.
Greater compulsion in pension saving, generally, is another tool for raising engagement. The Australian system features more compulsory elements, and Australians benefit from more intimate knowledge of the value of their savings, as well as where they are invested. The UK could take note.
"Greater compulsion in pension saving, generally, is another tool for raising engagement."
Bearing in mind the previous failure to launch such an initiative, alarm bells are already ringing around the Pension Dashboard’s timeframe for implementation, with 2019 looking like it may be overly ambitious. Our plea, here, would be for arbitrary deadlines to be thrown out, in favour of getting things right. Government must avoid a mad dash to get everyone on board. By the same token, that doesn’t mean pushing back implementation to 2027. We need ongoing, tangible progress and credible output to reassure individuals that the dashboard will help them.
Done well, the dashboard has the potential to take engagement to the next level, capitalising on peoples’ appetite for digital financial tools.
While this should be a tool to inspire the tech-savvy, it must also be simple enough for the non-technologically-minded to navigate.
"Done well, the dashboard has the potential to take engagement to the next level, capitalising on peoples’ appetite for digital financial tools."
The end-goal is again to inspire and empower people to track how much they have in their private and workplace pensions, and, vitally, to allow people to plan and make more informed decisions for their retirement.
Look out for my next blog where we will signpost the road ahead for implementation as the current 2019 deadline draws ever closer.
Join the debate:
Would an app make members more likely to track and engage with their pensions savings?
By keeping watch on the future pensions landscape, the industry can better understand what today’s savers need to watch out for, and how employers and governments can help inspire pensions savers across the board to prepare for the future. Why should employers be concerned that their employees are prepared for retirement?
Joining the dots on pensions and climate change for millenials
LCP Senior Consultant, Claire Jones, believes that making the link between pensions and climate change could be a turning point for engaging socially conscious millennials.
We have a generation of socially-conscious millennials, many of whom care passionately about climate change and sustainability. We also have a generation of future pensioners who are not engaging with retirement savings issues.
Claire Jones analyses where, and how, we can “join the dots” and hence help Future Pensioners see sustainable investing as a financial issue, as well as an ethical one.
"We also have a generation of future pensioners who are not engaging with retirement savings issues."
Anecdotally, we know that young people today are, by and large, a passionate bunch – particularly when it comes to sustainability and environmental, social and governance (ESG) issues.
In fact, according to the World Economic Forum’s 2017 Global Shapers Survey, young people, aged 18-35, around the world consider climate change to be the world’s most serious problem, bar none."
The challenge facing the pensions industry is to bridge the gap between socially conscious younger generations who care deeply about ESG factors, and engagement in retirement saving. There are natural links between retirement savings and responsible investment strategies, but none of these are communicated to young savers. As the PLSA’s Luke Hildyard points out, “climate change is not just an ethical issue for pension fund governance bodies, but a major threat to financial stability”."
"Anecdotally, we know that young people today are, by and large, a passionate bunch – particularly when it comes to sustainability and environmental, social and governance (ESG) issues."
Climate factors affect investment performance. A study from Cambridge Institute for Sustainability Leadership revealed that “even in the short term, climate risks pose a significant threat to investment portfolio performance” and “investors cannot entirely shield themselves from the exposure to climate change”.
Largely viewed as a longer term issue, the more immediate risk to pension fund investments cannot be overlooked. The Cambridge study showed, for instance, how equity portfolios could lose up to 45% of their value in the short-term due to market participants reassessing the significance of climate risks.
Such stark warnings come as the UK Government is also turning its attention to responsible investment. In March, Mary Creagh MP, chairwoman of the parliamentary Environmental Audit Committee, wrote to the top 25 UK pension funds – which have a combined £555 billion in assets under management – to explore how funds are protecting people’s pensions from the financial risks associated with climate change.
"Largely viewed as a longer term issue, the more immediate risk to pension fund investments cannot be overlooked."
The companies in an investment portfolio can be affected drastically and quickly, with new energy sources giving rise to new disruptive companies, as well as impacting the value of existing companies (fossil fuel companies may lose value as low-carbon energy methods surge, for example).
Governance bodies and investment managers need to consider their approach to the financial risks associated with climate change, and not mis-interpret their fiduciary duty as simply ‘maximising short-term returns’.
But this is also an opportunity to catalyse engagement in retirement and savings issues. The industry must now reach out to the untapped potential of passionate millennials, harness their fervour, and fully engage them in making financial provision for the future (as well as saving the world!).
"Governance bodies and investment managers need to consider their approach to the financial risks associated with climate change."
LCP’s Future Pensioner campaign seeks to look at ways the industry can encourage younger generations to save for pensions that are “fit for the future” but the “uncomfortable truth” is that there needs to be a future worth saving for. ShareAction has recently explored similar themes and the more voices joining this debate, the better.
Are you planning to make communication around climate change issues a priority to increase member engagement
Light at the end of the tunnel: what’s next for auto-enrolment?
LCP Partner, Laura Myers, reflects on auto-enrolment, speculating on the impact of changes and recommending how to best engage workers on saving for retirement.
As minimum contributions to auto-enrolment schemes rise from 3% to 5% (a change effective from April 6), it seems inevitable that people will drop out of their schemes as the contribution increases hit their disposable income. The Finance and Technology Research Centre’s recent study found that contributions for an average employee would raise from 4% to a 13% of disposable income. For many this will be a step too far.
As data for opt outs emerges in the coming months, it will be vital to look for ways to improve outcomes for the next round of contribution increases in April 2019."
Despite the increase to 5% looking daunting for some people, even the 8% it will increase to next year is nowhere near enough for people to be able to have retirement security. Just because people are enrolled at a base level, they should not be lulled into a false sense of security. To truly have enough to live on in retirement, people will need to save far more.
"As data for opt outs emerges in the coming months, it will be vital to look for ways to improve outcomes for the next round of contribution increases in April 2019."
In my view the only way we can achieve this is by educating scheme members regarding the value of their pension schemes, and this should be a priority for employers and Trustees. Communication is key, people need to understand the value of the ‘free money’ they’re giving away by not saving into a pension scheme. No one would say no to a pay rise, so if it’s affordable they shouldn’t say no to their company contributing into their long-term savings.
Technology can also be harnessed to encourage savers to remain opted in. Technology is increasingly pervading all areas of our lives, including in the workplace.
People have the ability to monitor their heart rate and tot-up how many steps they take a day, and have everything personalised for them at the touch of a button, but as soon as pensions enter into the equation, all thoughts of digital innovation fly out of the window. This need not be the case.
"Technology can also be harnessed to encourage savers to remain opted in. Technology is increasingly pervading all areas of our lives, including in the workplace."
The Pensions Dashboard is a start, but in order to persuade people to not opt out, perhaps there could be an effort to show people how much more they are saving on the 5% contribution compared to the 3% contribution over a 10 year period, with further projections for the 8% rise in 2019. People could then focus on the money they will be gaining in the future rather than the hole they see in their pay packet. Tracking the trajectory of your future retirement fund is a way to focus savers’ minds on the longer term. Attaching real figures to map out the future impact of auto-enrolment savings will make pensions more tangible and will help provide a clearer picture of the ‘light at the end of the tunnel’.