Personal Pension  

Nesting instincts

The latest, called UK Life and Platforms, summarises prevailing challenges in the sector: the difficulties faced by platforms as they chase migrating customers; auto-enrolment, which could be seeing huge capacity issues in the coming months and serious problems for Nest; and the rise of passive funds, partly as a consequence of the RDR.

Despite the pensions industry’s best efforts to get everyone into a proper pension, many, according to the report, would prefer to put their money into their house, seeing this as a much more viable investment than a pension fund.

This is not surprising. Property prices have risen 50-fold since 1970, with housing market transactions peaking in the late 1980s and mid-2000s.

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The report said: “Many individuals now consider their home to be their pension fund and, comparing the typical UK residential property value (which is in the region of £200,000) with the typical life company pension fund at vesting (less than £30,000 on average), it is easy to see why some people think this, especially given the massive real term rise in UK house prices over the last few decades.”

According to the report, investing in property was seen as important as saving in a company pension scheme pre-financial crisis, and only slightly less in 2009.

Property was considered by far the most effective way to make money, with 31 per cent believing this, against 16 per cent for paying into an employer’s pension scheme, in 2009.

Nonetheless, people are still paying into company pension schemes, with 58 per cent of full-time working women paying in, compared with 53 per cent of men. Perhaps not surprisingly, there is a distinct occupational bias.

Professionals put by far the most into their pensions, with 53 per cent making contributions of more than 7 per cent, followed by 26 per cent of “associate professional and technical” staff setting aside more than 7 per cent.

For those relying on auto-enrolment, it could be a different story. The report is quite critical of the recent industry fanfare about the success of AE.

It said: “Put down that gin and tonic and stub out that stogie, because the main event does not hit until mid-2015, when the staging stagecoach looks to pick up the huddled masses, when sub-50 employee populations start to get on board.”

Most of the companies who have met their staging dates so far are those who already have substantial HR departments, pensions knowledge and pensions schemes.

The report said: “The next wave of employers is less knowledgeable about pensions than the larger employers that have already staged, and research carried out by Nest and the DWP indicates they are expecting to get a lot of help getting their organisations ready.”

However, while most employers say they do want advice, only half of those said they would be willing to pay for that advice. With 90,000 sub-50 employers expected to stage a month by 2017, there is expected to be a real scarcity of good quality advice.

With many big-name life companies expected to disappear once they have the good quality large employer business, “Nest seems likely to end up with a large book of relatively poor quality business, mostly (in terms of employer numbers) derived from organisations with limited pensions skill-sets, and displaying poorer persistency.”