The imminent arrival of the first wave of automatic enrolment staging dates is a good time to review the success factors for pensions reform.
If we were looking back from the end of phasing and staging in 2018, what would be the key elements which would enable us to say it had worked as planned? And where are we on them at this stage?
First is employers understanding and fulfilling their duties. So far, the system seems to be working. The Pensions Regulator had issued just four compliance notices and one unpaid contribution notice by the end of January.
These statistics suggest most employers are doing a decent job and the regulator is actively monitoring compliance. But the real test lies ahead and there are indications that smaller employers are relatively uninformed about automatic enrolment. The first employer fine, when it comes, may be a good wake-up call to others.
The second success factor is the level of opt-outs. So far it has been under 10 per cent, which is much lower than initial industry predictions
of up to 30 per cent.
The third element is whether the pensions industry emerges with its reputation enhanced or damaged.
Part of that will be how well we cope with the increasing waves of staging dates. Advisers, providers and regulators will be stretched like never before, with the continued robustness of Nest being particularly important.
Alongside this, there must be confidence that consumers are being offered value for money and security.
This will mean a constant raising of the bar and it may be necessary for regulation to catch up with the voluntary codes being put into place by parts of the industry.
In practice, consumers are not being automatically enrolled into poor-value pensions and it is important that this message gets across. We also need to maintain momentum on the audit of legacy schemes.
A final success factor is whether employers and employees are choosing to pay in more than they have to.
The minimum total contribution starts at 2 per cent of qualifying earnings, rising to 8 per cent by October 2018. This compares with 12 per cent of total earnings, which we believe is the minimum that people should put aside to fund an acceptable living standard in retirement.
One of the biggest dangers with auto-enrolment is that it fosters a belief that the minimum contribution is enough. We must build on the scheme’s initial success by providing the information and encouragement that people need to really take control of their finances.
Ian Naismith is head of pensions market development at Scottish Widows