With the Government continuing to rule out pension compulsion, how can the industry help in the take-up of stakeholder pensions?
Against a backdrop of world political instability and tumbling economic markets, it would be easy to forget the problems we face in our own backyard. One of the biggest is the risk of impending poverty for today's employees, who will be tomorrow's pensioners.
In November, the ABI said: “People are still not saving enough. Ninety per cent of employer-designated schemes have no members, only 9 per cent of employers are contributing to schemes and take-up has fallen to less than 50,000 new policies a month.”
The issue of pension take-up has been debated long and hard and there has been no shortage of possible solutions from every conceivable industry and consumer body. The majority have focused on new ideas that could be implemented and the remainder have addressed softer issues such as the communication and promotion of the scheme.
To gain an insight into this problem, we could start at the root cause and ask why don't employees join their pension scheme? Are they all sceptical of pensions or do they have more pressing priorities with their money? In our experience, there are two reasons why the majority of employees do not join their pension scheme – the lack of employer sponsorship and pure apathy.
Because a respectable employer contribution is essential, employers need to be convinced of the value of a good pension scheme to aid recruitment and retention of staff. Employees value pension benefits highly. In a survey carried out by Virgin Direct, 89 per cent of men and women said the most important benefit they could receive from their employer is a contribution to their pension.
What we also need is a much more radical approach to take-up. Herald the birth of streamlined applications. This is a process whereby employees automatically join a pension scheme as a contract of their employment, hence guaranteeing 100 per cent take-up from day one of the scheme, without an employee signature.
They still receive a direct offer pack but there is no complex application to complete. This route is available if the contract of employment makes provision for it. Employees can opt out of the scheme on receiving their paperwork or make any changes related to their details, for example, investment of contributions.
In reality, our experience has shown very few employees cancel their membership after they have received the paperwork so the average take-up on schemes that have utilised this process is over 95 per cent. It works well with the apathetic because the employee need do nothing to join the scheme.
If the employer feels this is too strong a stance to take or the contract cannot be amended, there are several variations on the process. Employers can combine the procedure with worksite meetings to inform and communicate to employees the benefits of the scheme and the paperwork they will receive. Alternatively, a shortened application form can be used where the employer agrees the scheme basis and the employees merely sign to agree to opt into the scheme. There are no difficult decisions or complicated forms to complete. Just one signature guarantees entry to the scheme.
Friends Provident has recruited and trained a number of people who can present at worksite meetings and hold one-to-one meetings with employees to answer questions. These can be done in conjunction with the intermediary.
Pensions are intangible products that are sold rather than bought. Employees do not wake up one sunny morning and decide to buy a pension. They have more pressing priorities, for example, buying a house, raising children and living their life. It is hard to blame them for being apathetic about pensions.
Streamlined applications are one of the most powerful tools we have available today to solve the issue of take-up of stakeholder pensions. Many providers have this facility up and running, it just needs to be utilised on as many new and existing schemes as possible.
If the process succeeds, we will see a generation of pensioners enjoying retirement in future. It could be a brave new world. If it fails, the consequences could be bleak.
Ben Gunn is managing director of Friends Provident Life and Pensions