Graham Vidler says there needs to be a focus on simplicity in pension.
The Pensions and Lifetime Savings Association's (PLSA) purpose is to help everyone achieve a better income in retirement. Our aim is to get more money into retirement savings, to get more value out of those savings and to build the confidence and understanding of savers.
This isn't an easy task. The pensions industry is riddled with complexity and together we need to work to make it easier for savers to understand the benefits of a workplace pension. This can be done by using clear, simple communications, as well as demonstrating value and building trust in the sector.
Pensions and simplicity have never been natural bedfellows but automatic enrolment is making huge strides in making it easy to save for retirement. A report by the Department for Work and Pensions revealed that 6.87 million people have been automatically enrolled and since 2015 workplace membership is up from 10.7 million to 15.1 million. In 2015 alone, £81.8 billion was saved into a workplace pension. This is a great start but our research tells us more needs to be done.
Our report, ‘Retirement Income Adequacy: Generation by Generation', gives an insight into what income different UK generations can expect in retirement. The findings reveal that of the 25.5 million people in employment in the UK, 1.6 million are still at risk of falling short of the Joseph Rowntree Foundation's Minimum Income Standard (£9,500 in 2016) and 13.6 million are at risk of not meeting the target replacement rate (TRR) set out by the Pension Commission at 67% replacement of earnings for the average earner.
These are alarming figures and substantiate our calls for the minimum contributions to increase in the future to at least 12%. The 2017 review is an opportunity for the Government to set a direction for the next decade of automatic enrolment and to outline when to increase contributions in the future.
Keeping track of what you have
The high automatic enrolment figures show that when you make savings the easy option, people will take it. But it's not always so easy to keep track of what you've got. The pensions dashboard has the capacity to give consumers a user-friendly way to access information about their pension, helping to raise awareness and encourage greater engagement. We're happy to be closely involved in the development of the dashboard and will maintain a clear focus on the benefits to savers.
Building trust and demonstrating better value in pensions is hugely important in helping savers achieve a better income in retirement. Pension scams hinder this progression and are a major concern for pension schemes and their members. We've called on the Government to introduce a new authorisation regime that focuses initially on all new schemes with fewer than 100 members, and existing schemes with fewer than 100 members that wish to receive pension transfers. This would cover schemes which present the greatest risk of being used as vehicles for scams.
You don't need to search far and wide to read the horror stories about the current state of the defined benefit landscape, all of which go a long way in undermining the trust people have in pension schemes.
The Defined Benefit (DB) Taskforce has been working to highlight the main issues facing DB and, in its interim report last October, there was a reoccurring theme: the current system is too fragmented and is not fit for the future. Consolidation and its potential benefits was the central finding and the Taskforce believes consolidation has the potential to address the problems of complexity and will help deliver better value for money for savers.
The Taskforce is evaluating the potential impact of the full range of consolidation options:
- From simple consolidation of administration functions;
- Through pooling of assets;
- To single governance of multiple schemes; and finally
- To pooling of liabilities and the removal of the employer - something like the aggregation model described by the Work and Pensions Committee in its recent report.
More details on how the DB Taskforce sees consolidation working will be revealed in early March at our Investment Conference in Edinburgh.
We're doing all we can to ensure the pensions industry is developing in a way that benefits everyone. But working alongside us we need the Government to ensure that it's also doing everything they can to make it easier for everyone to save for their retirement. Let's keep it simple and let's jointly get across a very simple message: we all need to save for our retirement and a workplace pension is a great way of doing that.
Graham Vidler is director of external affairs at the Pensions and Lifetime Savings Association
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