Pensions  

Nest chairman backs extending AE defaults into retirement

Nest chairman backs extending AE defaults into retirement

The auto-enrolment sector should design default retirement options for inert members who cannot or do not want to take charge of their own incomes in retirement, Otto Thoresen, chairman of the National Employment Savings Trust, has said.

Speaking at Nest Insights in London pensions conference last week, Mr Thoresen said that while universal engagement in pensions was a worthy goal, the brute fact was that “inertia is our present”. This, he argued, meant default retirement options were a logical development.

“We shouldn’t be fearful of forms of default pathway. Everything that automatic enrolment has taught us is that defaults work,” he said.

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“Of course people should be provided with freedom to access their retirement savings. But for those that don’t want it, and for those who need to be supported, why shouldn’t we consider forms of smooth transition into products which have an increased likelihood of providing for their needs with minimal further intervention on their part?”

He said that if a trustee could determine the asset allocation of a 32-year-old to ensure the best outcome of a 67-year-old, they should be capable of doing the same for a 67-year-old “to ensure they can still pay the bills when they’re 72”. He pointed to Nest’s retirement ‘blueprint’ plan - a work in progress which will provide members with a default retirement income account - as an example of this.

He said that the industry should not accept the status quo of inertia, and that as people become more active, engagement and education would become more important.

“But we have to accept where we are, and start tailoring solutions that fit the challenge in front of us, not the challenge we’d prefer to face. The future may be paved with better engagement, but the future is a distant, different and difficult place to get to.”

Mr Thoresen said, while the defined benefit sector was facing serious problems, overall the members of DB schemes would “probably be all right”.

“However, for the DC pension generation, their DC pension savings are going to have to work a lot harder. These are the people for whom unstable or poor investment would be catastrophic, because for these people a DC pot will be all they’ve got.”

He said there was a “clear role” for trustees to ensure these people’s pensions savings were doing their job.

The extent of AE inertia was emphasised by Now: Pensions director of investment and product development Rob Booth. He revealed that only 1 per cent of Now: Pensions members use the website.

“The biggest friend of auto-enrolment is inertia,” he said. “It’s the reason aut-enrolment was set up in the first place.” He said when you ask people to join a workplace scheme, they don’t. “People don’t do what you tell them to do,” he said.

But he said inertia was also the “biggest enemy” to AE, because it made it almost impossible to educate members.