Apathy is essential to auto-enrolment’s success, the chairman of the National Employment Savings Trust’s chairman has said, as figures this week warned a million and half people have no idea where their workplace retirement funds are invested.
Otto Thoresen, who heads the auto-enrolment provider set up by the government, said the schemes’ opt-out system was designed for disengaged people who need to have the difficult decisions - like where and how their money is invested - made for them, rather than explained in detail as a financial adviser would.
“Research suggests that while [financial advice] services are important, they aren’t right for everyone. Millions of people don’t seek this type of help,” he stated, calling inertia “the foundation on which auto enrolment’s success is based”.
“As our blueprint sets out, we think the auto-enrolled generation will need products that do most of the hard work for them, and provide a balance between security and flexibility so they don’t have to worry about making complex decisions.”
Mr Thoresen said this puts the onus on trustees to ensure members’ funds are being properly invested, with governance not being left to chance, adding there was a case to be made for extending trustees’ role into the retirement phase.
This week Aviva released a report that found a spike in disengagement among members of defined contribution workplace schemes, such as Nest.
Of the 9.8 million enrolled in defined contribution workplace schemes, 15 per cent were ignorant of where or how their money was invested, up from 9 per cent in the 2012-13, when auto-enrolment was introduced. Aviva predicted that this figure would increase as auto-enrolment continues to roll out for smaller schemes.
Peter Walker, chief operating officer of rival auto-enrolement pension provider Smart Pensions, corroborated this claim, saying his schemes’ efforts to reach out to new members had so far been largely met with silence.
He said this was probably down to the size of pension pots, which at the moment are not very large. “Over the years it will grow though, so I would look for more engagement over time,” Mr Walker added.
David Smith, a financial adviser and director at Tilney Bestinvest, agreed that what he called the “general apathy” of employees was down to the “tiny” contributions being made.
However, he did not think engagement levels were likely to improve, suggesting those who thought they would were living in “fantasy land” and adding: “At the end of the day, if the employer doesn’t want to promote the pension scheme, then how will the employee get engaged?”
Mr Smith also said Mr Thoresen’s claims auto-enrolment was designed for the inert were “100 per cent accurate”, but he feared increasing contributions, far from being a positive development, would result in more people opting out, for the simple reason that they can’t afford the extra expense.
He added a large number of people in the north east of England, where he is based, are living “hand-to-mouth” as it is.
james.fernyhough@ft.com
