Increasing mandatory pension contributions slowly to 8% could breed complacency in Britain according to an Australian expert.
Speaking at the Workplace Pensions Live 2016 conference, Independent Trustee Services client director Dianne Day explained what lessons the UK defined contribution (DC) market could learn from abroad.
There is constant tension between getting people to save enough through compulsion and what an individual can actually afford. "The danger of not going hard early [on contributions], if you start with this soft compulsion, there is a danger people think 8% will be enough," Day said.
Encouraging additional voluntary contributions and the industry broadcasting a positive message on higher contribution rates than 8% could help address the problem, she added.
Linking financial advisors to providers, which has happened in Australia, is also important to replicate in the UK.
PensionsEurope vice chairman Jerry Moriarty who also took part in the panel warned the tone used to talk to people is critical. "The adequacy question is difficult and I think there is a danger you almost shout at people and say ‘you should be paying in 10% or 15%'," he said.
Simeka Consultant & Actuaries head of strategy, governance and compliance Kobus Hanekom, based in South Africa, added engagement with people should happen as soon as possible.
"You will best reach people in the first two weeks of employment and you must avoid the minimum [level of contributions] can become the maximum."
Ultimately the UK needs a change of psychology where people own their own retirement plan. Day said: "One of the things I have learned from the Australian experience is people have to believe it is their money to get a sense of ownership."
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