Lord John Hutton says that while much progress has been made to boost retirement saving there is still some way to go.
There are lots of reasons to be optimistic about the future of retirement savings in the UK. Auto-enrolment has made it easier for millions of people to put money aside for their retirement.
Government has focused on improving the governance of defined contribution (DC) schemes – a really important issue if we are to improve value for money for scheme members. More generally, lifetime ISAs may also help encourage a new climate of saving. It is early days for all of this but so far the results look positive.
But the future for DC remains a challenging one. I think there are three big risks ahead for all of us who want to encourage more people to start saving more for their retirement.
First, there remains a lack of consumer engagement in the whole issue. Pensions remain mysterious and complicated for many people. To overcome this problem we have to make saving easy and uncomplicated. This was the approach recommended by Lord Turner a decade ago. We should stick to this course because it is more likely to produce the right results.
The more complicated we make financial decisions about retirement, the more we load on to the shoulders of savers themselves, the less confident we can be about whether people will be able to maintain their expected living standards in retirement. It is a moot point whether we can fit some of the more recent reforms – like freedom and choice – into the framework designed by Turner.
Lack of confidence
Second, despite the positive impact of auto-enrolment, there is still a lack of consumer confidence in pensions. There are rarely ever any positive news stories in the media about pensions. This has left a negative mark on public consciousness.
Ultimately, it is only the successful implementation of the Turner package that can turn things around. By this I mean getting millions more people to the point where they can be confident about being able to enjoy their lifestyle choices in retirement. This will take time.
In the meantime, we face the third major risk – an inconsistent approach to regulation. If success in this endeavour is a long-term project, the danger is that policy makers often get tempted into doing things that have a more immediate short term impact.
Generating a constant tide of change and regulation can create the appearance of action. Some of it is very laudable. There has been something like a dozen consultations in the last year or so proposing a series of measures which could have a considerable impact on our pension system. We need to tread carefully here. The risk of a mistake is high. Good intentions don't always result in good regulation.
My view is that we should not seek to break with the fundamentals of the Turner consensus. Keep it simple for savers. Remove as many of the barriers to saving as possible. Don't expect individuals to be rushing to engage with difficult choices over how to get the best value from their pension pots. Keep our focus now on improving outcomes for savers in DC – and this includes the vital question of how much are people saving for their retirement – and be prepared to accept that this is a long-term project.
This is why I welcome the Redington DC Talking Heads initiative. There is enormous value in bringing together people of knowledge about how our pension savings system works to talk through the challenges we all face. From this process will I hope come a consensus about the right way forward.
Lord Hutton is an adviser to Redington
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