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Ros Altmann: Can we ever make pensions sexy?

Ros AltmannPensions are a brilliant product, and the success of auto-enrolment offers a tremendous opportunity for the industry to explain the advantages to millions more workers. However, campaigns to educate, enthuse and engage savers have simply not materialised.

Traditionally, pension products were sold to individuals or employers by intermediaries.

As such, providers have had little experience of direct-to-consumer marketing. But pensions today should be a D2C product.

That means the industry finding new ways to reach out to customers, helping them understand how good the options are.

It has failed to rise to this challenge. Indeed, instead of developing consumer-friendly messages and exciting new products, workers are expected to just pay into their scheme’s default fund without worrying about the details. Auto-enrolment minimum contributions are not going to deliver generous pensions. However, instead of employing modern marketing techniques to attract savers to pay in more, the industry is calling for the government to mandate larger contributions. Surely providers should shoulder some responsibility to attract, inform and engage people to pay in more?

We need adverts extolling the virtues of pensions in a language normal people can understand.

We need to promote the “free money” that accompanies contributions – pictures of £50 notes you can buy for £20, for example.

Or what about raising awareness of investments that benefit social or environmental causes, while also aiming to build a growing fund for the future? New products to fit better with modern lives.

Disappointingly, the pension freedoms have not generated the flexibility and choice many had hoped for. Instead, more baffling jargon has been added to the old user-unfriendly terms.

Who will warm to uncrystallised funds pension lump sums or flexi-access drawdown? Even the phrase “default” funds hardly sounds attractive to new savers. Why not call them “standard” funds or “expert’s choice”?

For most people, pensions are the best way to save for retirement, but there is no doubt they are complicated. The pension freedoms regime was originally designed to be accompanied by financial guidance to help people plan better. However, take-up has been woefully low so far, leaving many on their own.

Ideally, of course, people will seek independent financial advice to ensure they are making the right decisions. However, recently released figures show one in three have been withdrawing money without the benefit of advice to help them avoid costly tax traps. Advice can more than pay for itself in many different ways.

A promotional campaign explaining the benefits of the “free money” that comes from pension contributions, the tax-free investment returns, and inheritance tax cases for keeping funds into much later life is long overdue. Any promotion of this kind also needs to include the benefits of taking expert financial advice to ensure people make the most of the advantages.

Ros Altmann is former pensions minister

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. Employers also need to pay in far more to their staff pensions. Just paying the minimum ticks the regulatory box but also sends a strong message to employees. E.g. a large employer in Financial Services matching employee contributions up to say, 6%, implies that a 12% contribution is adequate. I have also seen pre auto-enrolment DC schemes offering to match up to 2.5%; that was for poorly paid workers in the retail sector. Employers need to start putting pensions higher up their priority list.

  2. Julian Stevens 24th June 2019 at 2:22 pm

    I do wish people would stop talking about “the success of auto-enrolment”, as if the idea was one that employers took voluntarily to their hearts. It’s a bit like trumpeting the success of legislation requiring car drivers and their passengers to wear seat belts. It wasn’t optional.

    More to the point: Does the Average Joe have any greater understanding of pensions or confidence in them or is the prime factor preventing many more opt-outs inertia?

    That’s not to say that AE is bad but why, if pensions are so great, was it needed in the first place?

    Pensions should be so good that they all but sell themselves and anyone who isn’t contributing to one should be regarded by his peers as a bit of a fool.

  3. Without good financial education in schools, colleges and universities people will never appreciate the benefits of planning ahead or how the earlier they start the smaller the contribution needs to be each month.

    Human beings naturally live in the now and tend only to consider the immediate future, but making retirement planning successful, means they need to consider and do things up to 50 years in advance of when they will receive the benefit and that is probably the most difficult thing.

    Auto enrolment could only be viewed as a “success” because many people are not opting out, but I don’t think we can honestly view putting people into a default fund option (which is probably not suitable for them) compulsorily as “success”.

    Success would be getting both employee’s and employers to understand the benefits of working towards a healthy retirement situation, understand what they need to do and also understand the basics of things like risk, reward and timescales.

    I also do not believe that we can call it a success whilst virtually all AE schemes offer a very limited range of not particularly great fund options, with relatively high charges (for closet or actual trackers) and no advice included.

    There seems to be this assumption that most people are “cautious” when it comes to investing in something like a pension. However likewise most people become more adventurous in their investment choices as they become more informed (assuming they have large timescales to work with) simply because they start to better understand investment and why short term up’s and downs when your 20 years from retirement are basically irrelevant.

    Education is the key and that has got to start in schools, but the key to that education is about making things interesting, showing their relevance and helping people understand how small changes over long timescales can make huge differences to their future.

  4. 30% flat tax relief and remove the annual and lifetime allowances. Keep the earnings link. That’s sexy!

    • Julian Stevens 24th June 2019 at 6:23 pm

      And from where would the additional 10% for basic rate tax payers come?

      • Higher rate taxpayers only get 30%. People with annual incomes over £50,000 accounted for 11% of income tax payers, but over half (52%) of private pension contributions attracting tax relief. The 1 per cent of income tax payers
        within incomes of £150,000 and above accounted for 15% pension
        contributions attracting tax relief. Limiting over half of the tax relief to 30% pays for the uplift on the remainder. This information is in the public domain.

  5. Kenneth Thompson 25th June 2019 at 10:13 am

    Does auto enrolment replace what has been lost under less Generous New State Pension (NSP) when you compare it to the old basic state pension and additional state pension which was a great deal more generous in total than the NSP and on top of that now pay contributions to auto enrolment which might not yet match what has been lost under the introduction of the NSP.

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