The challenges the UK experienced with auto enrolment, By Martin Palmer, Friends Life
Auto-enrolment is still a hot topic in the workplace benefits arena, as small to medium-sized employers are preparing to stage this year. What is very noticeable though is that the emphasis is shifting. Rather than focusing on the implementation, the focus is increasingly on outcomes. Getting everyone to save for their retirement is a major step forward - but are they saving enough?
By Martin Palmer, Head of Proposition, Corporate Benefits - Friends Life
On current contribution rates, the answer would be a resounding no for the majority of members. Minimum contribution rates under auto-enrolment will eventually run between 7% and 9%, which is a good start, but isn’t enough for people to realise their financial ambitions in retirement. This leaves us with an interesting conundrum. There is a difficult line to tread between telling people how good it is that they have started saving, but pointing out that it is unlikely to be enough. And that line is particularly fine amongst members who may be struggling to get used to doing without the money that is going into their pensions savings.
To avoid pension savers opting out, we need to engage them in the importance of their pensions savings. This will help them to realistically assess the amount they might need in retirement and what they are on course to achieve. This is a particularly important exercise for those in their 40s and 50s, who can review their plans whilst there is still time to make changes.
This requires use of engagement tools like calculators, financial education at the employee’s fingertips and peer group support. The good news is that with all the information channels now available, these are things we can deliver in a targeted way. Tools and stochastic modellers can be used to illustrate what it means to increase or decrease retirement contributions, over a given timeframe. Other tools can help to show easy ways of saving in everyday life to improve outcomes in the future.
The workplace is a great means to deliver all this, but this does need employer support. In the time and resource pressured SME world this is not an easy task. Employers need to understand why it is in their interest that employees can afford to retire, and that engaging them will be beneficial in the long run.
What we must not forget however is that for these businesses, auto-enrolment could actually be a bigger deal than for the large companies that have staged up to now. The reason for this is two-fold: firstly these SMEs may have no pension provision in place and/or have no pensions or workplace savings manager and secondly, the much-discussed ‘capacity crunch’ means that the support these businesses need may not be as readily available.
Looking at it from this point of view, it becomes clear why spending more time and effort to engage employees with their pension savings may feel like a step too far. But if SMEs have chosen their provider well, then it should not be them having to make all that effort.
Martin Palmer, Friends Life (UK)