Steve Webb’s plan to apply a 0.75 per cent pension fee cap to occupational DC pension schemes caused shock waves across the financial services industry. But how much difference will the fee cap really make when it comes to the most important issue – boosting retirement saving?
Auto enrolment is vital to deal with the woefully small pension pots retirees currently face. The median average pension pot sits at just £20,000 – that’s less than the average annual salary. But yet again the industry and Government are tying themselves up in knots about the latest price cap rather than focusing on what will really make a difference.
From talking to the businesses directly affected, it is our belief that making auto-enrolment a success and boosting pension pots will come from better communication. If we get employers to buy into auto-enrolment, to understand its value and what it could mean to their workforce, they may just invest in it. And employers bought into the idea will mean a more financially literate workforce and bigger contributions on both sides.
Yes, the price cap could mean good news for employers, giving them the reassurance that their employees will not be paying over the odds for their pension schemes. But by focusing on price rather than delivery the Government has lost sight of what will make the difference.
The pension fee cap has done nothing to help employers engage with the auto-enrolment process – it has just given them another piece of complicated legislation to try to digest. Likewise the Government’s communications strategy for auto-enrolment is deeply flawed. We have all seen the adverts with consumers enthusiastically saying “I’m in!” but if the key to success is getting businesses on board. Why hasn’t more been done to help and engage them?
Employers are the ones that need to choose a pension scheme, communicate to their staff and handle all the other of the 33 tasks involved in preparing for auto-enrolment. We have seen that The Pensions Regulator has so far investigated almost 600 companies for auto-enrolment non compliance. That is over one in 10 businesses that staged last year. This is evidence that we are just not working hard enough to get employers on board.
Advisers have a critical role to play in getting employers engaged and making sure auto-enrolment is a success. With so many businesses completely unprepared to deal with the complexities of the legislation, advisers will be key to help smaller businesses navigate the process and engage with it effectively.
We all need to work together to focus on what will make the real difference to the future of pensions – giving Britain’s businesses a chance to help their employees for the future.
David White is managing director of Creative Auto Enrolment