It has often been said that the attitude of the personal finance media towards personal accounts will be key to its success. If the weekend money sections are telling people it is not worth sticking with, people will opt out in their droves.
But by that same token, what is make or break for the state-sponsored DC scheme will also prove hugely important to the success of private sector arrangements in the workplace.
So key is the role of the media to the success or failure of the project that B&CE recently conducted research on what journalists will tell their readers to do. As many as 43 per cent of key journalists thought it “very wrong” to enrol people into a scheme without doing more to make sure it is suitable and 70 per cent plan to tell their audience about the potential pitfalls and warn them to think carefully before signing up.
B&CE’s particular focus is on the disincentive to save caused by means-testing. But with time, another key factor of auto-enrolment and personal accounts will be investment performance which could ultimately lead to journalists championing personal accounts as a low-cost option. Whatever default option the personal accounts trustee corporation finally puts together, it is likely to put the active v passive debate under increased focus across workplace pensions.
Like it or not, I expect the personal accounts’ default fund to become a benchmark for workplace pensions across the board. How well private sector defaults perform will be measured against the personal accounts’ default and if those with higher charges do not perform in terms of generating higher returns, the media could turn against them.
Some might argue that private sector pension investments, particularly those where members have been engaged sufficiently to opt out of the default, will use entirely different products to the trackers of personal accounts and therefore cannot be validly compared.
The industry will also argue that it is adding value by educating employees about their attitude to risk and how that should be reflected in their investment strategy.
These are valid arguments but they are unlikely to make much headway in the money sections of the weekend papers. Returns and charges are the two key issues for most personal finance journalists and in an environ-ment where the ability of stock-pickers to generate above-benchmark returns is under question, the only one of these that can be influenced with any certainty is cost.
If the trustee corporation can put together a decent, ultra-low-cost fund that achieves reasonable performance, then there will be those prepared to argue that is all you need. But it will not all be plain sailing for the personal accounts’ default fund, particularly if equities do bounce back, as the theory says they are supposed to.
This is partly because the personal accounts’ target market is more risk-averse than those currently benefiting from workplace pensions and the trustee corporation will have to tailor its principal default to reflect that.
A 30 per cent fall in the value of personal accounts in the first year would be a political calamity, so those in charge of the fund are not going to let such a scenario come to pass.
That should mean that private sector workplace schemes that are better able to communicate risk should achieve outperformance of personal accounts.
The pension industry has got its work cut out to forge its proposition post-personal accounts and RDR. Member education will be core to that but so will returns.
John Greenwood is editor of Corporate AdviserMoney Marketing