In her keynote address at the National Association of Pension Funds’ (NAPF) Annual Conference & Exhibition today (Thursday), Joanne Segars, NAPF Chief Executive, applauded the “green shoots of pension recovery” triggered by the successful introduction of automatic enrolment but outlined the two outstanding major issues for the pensions industry.
Ms Segars said:
“There aren’t many of us who think that the eight per cent contribution is enough to deliver a decent pension. It’s a good start and certainly better than zero, which is the reality for too many today. But now we are going to have to brave up to this issue, as 12 or 15 per cent are more commonly seen as being the right kinds of benchmarks. We need to start managing expectations now – and set the trajectory so that it is a gradual increase. This is a challenge for the next Government – not the one after that or the one after that. I recognise that it’s difficult to have these types of discussions, but we can’t dodge them.”
“There’s much focus on the accumulation phase of pensions, but what happens at retirement? People need help and support when it comes to taking their pension. We can’t have a situation where we are relying on inertia and defaults when people are saving, only for them to be left all at sea when it comes to taking that income.
“NAPF’s research shows that £1bn leaks out of the annuities market each year because people get the wrong annuity for their lives or a poor value annuity. We can implore people to use the Open Market Option but for many the open market is just not open to them. Providers don’t want to know, and their pots are too small.
“This isn’t just the case for individuals. It’s true, too, for schemes trying to get the best deal for scheme members. Our members tell us they can’t get access to broking services on decent terms for their scheme members because the scheme is too small or the employees too low pensioned. That cannot continue. It’s why the NAPF is investigating what steps we can take, and what services we can offer, to help ensure our fund members and their scheme members get decent outcomes. So watch this space.”
Ms Segars used her speech to launch the NAPF’s Automatic Enrolment: One Year On report, which shows that employers back the reforms and employees are relieved to be saving. She welcomed the “signs that we’re turning into a nation of pension savers, not pension shirkers” and stated that the hard work of getting the scheme off the ground had paid off – the schemes the NAPF talked to for its Automatic Enrolment report said they had an extra 120,000 people saving for the first time, participation rates of 95 per cent and more and opt out rates lower than expected. In total, there are around 1.6 million employees in schemes over the past year because of automatic enrolment.
She said, however:
“We know that the real challenge is still to come – with medium and smaller employers still to auto enrol – and we need to get it right for them. The lessons our survey revealed are complexity, capacity, change and communications.
“Even the large schemes said the rules were too complex and can be a disincentive to do more than the statutory minimum. In this context, pensionable pay and qualifying earnings a big issue. We don’t want small schemes to be so overwhelmed that they do things badly – or not at all – with risk of high opt out levels. So we need a re-think on the appropriateness of the current rules and regulations in the light of this experience.
“Capacity issues – of a shortage of advice and providers to accept auto-enrolment contributions are also a concern, particularly as we start to see thousands, not handfuls, of employers hit their staging dates. Small employers are likely to be much, much more reliant on advisers. Advisers and providers need to be scaling up already.
“Change – it’s about recognising that auto-enrolment is not the end of the game. There’s scheme-driven change, with schemes trying to improve their governance, investment defaults and rationalising or consolidating pension arrangements within an employer. Then there’s the externally-driven change – with the ending of contracting out a big issue looming large for schemes. There are real concerns about when and how the scheme-driven change will get done, because of limited budgets and resources.
“Finally, we’ve seen a big investment in communications with employees but many employees told us that they are still not engaged. We need to be much more creative about how we go about engaging savers. That means freeing up employers to say more about they great schemes they run, as many are keen to do. How about creating “safe harbours” to allow employers with good quality schemes to be able to proactively talk about those schemes.
Ms Segars talked about the NAPF’s “decent track record” on the charges code, the Pension Quality Mark and the Pensions Infrastructure Platform as examples of supporting members and vowed that the NAPF would continue to be a driver for change, aiming to see by its Annual Conference 2014 “the green shoots of pensions recovery well and truly established.”
Notes to editors:
1. The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,300 pension schemes with some 16 million members and assets of around £900 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.
Dee Sullivan, Head of Media and PR (interim), 020 7601 1717 or 07917 506 683, [email protected]
Aimee Savage Richards, Press Officer (interim), 020 7601 1718 or 07825 171 446, [email protected]