 At a pensions industry conference today, new research (which can be found here) commissioned by Aberdeen Asset Management into the future of UK private workplace pensions will be presented to Steve Webb, Minister of State for Pensions. The research shows that not only does the pension model as we know it today demands a re-think but that a long term approach- by policy makers, the industry and individuals- has never been more important.
Steve Webb MP, Minister for Pensions, said:
“I’m determined to get more people saving for their future and take the hassle out of doing so. Through automatic enrolment we’re making it easier for millions more people to take a long-term view and put something aside for their retirement. We will be publishing ideas for how we can reinvigorate workplace pensions, and make reforms to the state pension to make it simpler and clearer.”
Based on the expert views of more than 250 trustees, industry professionals and employers, the research touches on the social, financial, employment and regulatory structures needed to support a retirement lifespan that could be as long as a person’s working life.
Key findings from the research include:
• Employers and their advisers want a sustained period of regulatory stability that allows them time to implement new initiatives such as National Employment Savings Trust (NEST) and make them work effectively;
• There is a desire to see tax incentives from pensions to more flexible savings options, which could be more suitable than the traditional pensions model, particularly for the lower paid;
• Evolution of employment culture to accommodate people’s extending working lives whilst also increasing employee engagement in retirement planning.
Joanne Segars, Chief Executive at the National Association of Pension Funds (NAPF), said:
“We welcome studies like this, which look at improving our retirement savings system, and this report is a valuable contribution to the debate.
“Our country needs a long-term approach to saving for retirement. For too long there has been too much chopping and changing. It is crucial that there is more stability in the pensions system so that people are clear on what they need to do when it comes to saving for old age.”
Anne Richards, Chief Investment Officer for Aberdeen Asset Management commented: “There is no stability to the saving framework to allow people to make a long-term commitment. Every year tax legislation changes – investors are now drowning in an alphabet soup of forthcoming regulations. People struggle to understand what they can and can’t do and should and shouldn’t do in terms of what they should be saving. If we want people to save long term, we need a long-term approach from regulators and politicians – let’s get everyone committed to the same timeframe and shift the focus from process to outcome.”
Further key findings from the research
Long termism is also vital to trustees managing defined benefit (DB) schemes. In a market of very low interest rates, trustees want governments to support DB schemes by allowing a longer term view on liability matching and facilitating access to alternative asset classes, where possible.
Product innovation and technology have vital roles to play in supporting auto-enrolment and meeting consumer demand for more flexible, affordable and reliable savings options, better matched to particular needs at all stages of the retirement journey. Early signs from the embryonic workplace savings platform market are that employees who have access to these show a higher propensity to choose outside of the default option. While none of the employers in this survey currently offers a corporate wrap, 31% plan to do so within the next two years.
Default funds, in which typically at least 80% of DC members invest, are not considered fit for purpose throughout the life of the investment and many experts in this study believe that more active management and focus on the decumulation phase of retirement savings is needed.
Asked about ‘defined ambition’ and the concept of risk sharing, employers want more detail on how it would work. And while trustees believe in the principle of risk sharing and that it could encourage incremental savings, there is little appetite among employers to bear investment risk in the current climate.
The vision for the future of private, long-term savings embraces a world in which people can access platforms to construct their own portable individual wrap of ISAs, company share schemes and pension. This sets a challenge to platform providers, financial services providers and employers to deliver flexible, appropriate products. It supports innovation and more flexibility across the pension landscape, from saving and investment products to the regulatory environment, recognising that consumers are driving change.
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