What more is needed to boost workplace pensions?

Getting people engaged with workplace pensions - particularly where the employer matches or doubles the contribution - is widely seen as a starting-point in conversations about pension planning.

According to Mike Morrison, head of platform technical for AJ Bell, “we need to make sure people understand how much they will have to contribute in order to get a realistic income. The current low level of contribution will have to increase radically.”

With regard to auto-enrolment, the government has already acknowledged contribution rates will need to rise past the statutory 8 per cent.

In the May 2016 House of Commons Work and Pensions Committee (WPC) report: Automatic Enrolment, 11th Report of Session 2015-16, the committee called on the government to make sure its 2017 review needed to consider ways to boost people’s workplace savings.

It could also do damage to the auto-enrolment pension provision of the future if we cloud the matter with workplace Isas Mike Morrison

According to the report: “The review should consider how to increase contributions beyond the statutory 8 per cent and how to bring more low-paid and self-employed people into AE.”

Regulation

AJ Bell’s Mike Morrison adds: “It is important to make sure the regulatory regime around auto-enrolment is sufficient to maintain good governance and transparency of charges. We cannot afford any new pension scandals.

“It could also do damage to the auto-enrolment pension provision of the future if we cloud the matter with workplace Isas.”

This was also the view of the Work and Pensions Committee, whose report commented: “AE is on schedule to have a transformative effect on private pension saving, but is now at a crucial and risky stage of its development.

“It is imperative it is not undermined by other government-sponsored forms of saving.”

Master trusts

Another regulatory hiccup on the horizon is the potential problem of master trusts, many of which are not regulated. There are 72 currently open, the WPC comments, and while generally these are a good fit with the aims of AE, the Pensions Regulator has warned of the risks posed by poorly-run master trusts.

In 2014, the regulator published a master trust assurance framework to ensure adequate standards of governance and administration, but it has no power to compel trusts to meet these standards.

The pensions minister is calling for a Pensions Bill this Autumn to introduce stronger regulation of master trusts.

Chris Daems, director of Cervello Financial Planning, comments: “The way regulation is communicated is fundamentally important.

“Better communications, combined with more support for employers, will contribute to more engagement.”

Communication

“The quality of communication and financial education can be a real differentiator between schemes”, says Dale Critchley, policy manager for Aviva.

He explains: “Employees who understand the benefit they are offered are more likely to appreciate the investment being made by their employers. The result is a return on investment in excess of simple compliance with the law.”

There are also issues over the way in which some pensions literature is phrased, which Henry Tapper, founder of The Pensions PlayPen, says does not engage employers or their employees.

In a recent tweet to The Pensions Regulator, Mr Tapper cited an example of sparse communications, and wrote: “How do we get employers to engage without the means to make an informed choice?”

More education is needed, from as early an age as possible, to ensure people make the most of what the workplace is offering.

Steven Cameron, pensions director at Aegon says in the provider’s Fifth UK Readiness Report: “Despite 59 per cent of us expecting at least half of our retirement income to be made up of a private pension, the reality is more than half of us will be primarily reliant on the state pension because we haven’t saved enough into a private or workplace pension.

“At a time when this state support is undergoing major changes, it’s particularly concerning to see that two thirds don’t know how much they are personally set to receive. On the whole, awareness is improving, but less quickly than saving behaviour and nowhere near as fast as it needs to.”