Personal PensionJun 27 2016

Webb: Employees must be forced to put more into pensions

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Webb: Employees must be forced to put more into pensions

In October 2014, Mr Webb had said default auto-escalation is the key to getting pension contribution rates over 8 per cent, adding that compulsion to pay into a pension “is not the answer”.

Speaking at the National Association of Pensions Funds’ at that time, annual conference, the minister for pensions Steve Webb said that in principle “default auto-escalation is probably the best answer to the problem that 8 per cent is not enough”.

From 1 October 2018, the total minimum contribution for auto-enrolment will be 8 per cent, including employer contributions.

However, speaking at an event held in London on The Future of Life and Pensions, he said: “One thing you learn from government is the lead time on getting anything done, if you think from Adair Turner’s first report in 2002 to the end of auto-enrolment at 8 per cent in 2019 – that’s a 17 year lead time.

“So if we are going to get beyond 8 per cent, which we must, we should have been starting this work ideally yesterday.

He added: “If I had one message it would be that all of us have to combine all of our energy beyond 8 per cent because compared with that nothing else matters.”

“For me the key actually is getting the defaults right – engagement is lovely but we can’t rely on engagement.”

However Yvonne Braun, director of long-term savings at the Association of British Insurers, disagreed with Mr Webb at the same event, as she said: “I’m not quite sure if I fully agree with the pessimistic view on engagement.”

Jamie Jenkins too resonated with her sentiment. Speaking to FTAdviser, he said: “No I don’t agree that we need compulsion - I think the experiment of nudging which is auto-enrolment so far as seen 6 million people and less than one in ten opting out.

“It was predicted to be higher opt out rates than that - I don’t understand what the basis for an argument for compulsion is when you’ve got something working so well.

“Secondly it is a form of compulsion the employer must put people in set up the scheme and then pay into it for those who stay and my final point was around those in Australia, which is not that different to have 9.5 per cent compulsory in Australia through to where we’ll be in 2019 which is an 8 per cent employer/employee.

“I think we’ll get to a better place through people ultimately believing it’s the right thing to do and being engaged rather than looking at it as a tax.”

In February 2016, the current pensions minister Baroness Altmann said if the pensions industry is working correctly then compulsion in terms of auto-escalation for those who are auto-enrolled will not be needed.

In an interview with FTAdviser at that time, she said: “One of the big themes for me is making sure that the industry treats customers well.”

She added that this is a “whole new mindset” for the industry because historically they have not very often engaged with customers.

Colin Rodger, director at Edinburgh and Glasgow-based Alexander Sloan Financial Planning said: “I don’t think we are ready for compulsion yet.

“The current system is working better than hoped with low opt out rates, so I think this should be allowed to continue through to the point where all businesses have been through their staging date. It could be reviewed then.”

ruth.gillbe@ft.com