Pensions minister Guy Opperman has argued there is a need for employers to have a savings product offering, in addition to a pensions package, as a means of retaining staff.
Speaking at an International Longevity Centre UK event on June 29, Opperman discussed the future of pensions and listed his 25-year manifesto.
He said that pre-Covid-19, 10mn people did not have savings worth more than £100, and while more recent data looking at the post-pandemic period is not yet available, “the figure still is not great”.
Explaining his conversation with companies recently, he said many are offering 10 to 15 per cent pensions packages to candidates, but still struggle to recruit young people.
We will do the auto-enrolment 2017 review. Clearly, Covid and the rise in national insurance got in the way of that in the short term, but that will happen without a shadow of a doubt
Guy Opperman, pensions minister
Opperman argued that this is due to the fact that pensions is not what young people are excited by.
“If you speak to young people about what they are really interested in, first of all, for a bloke it is mainly buying a car. And if you’re a couple, it’s definitely buying a house,” he said.
“If you change that and effectively have a default, but you add on savings as part of the sign-on package, it’s amazing for staff retention and the difference that makes.”
He explained that those in their thirties are not “excited by or enthused” by a 10 to 15 per cent pensions package, but they are happy with an 8 per cent pensions package with 5 per cent savings on top.
“I do feel very strongly that we need to get to a situation where we have default 1 per cent savings that is taken out of pre-existing pay,” Opperman said.
“It’s not a situation where you are giving enhanced pay, but you are being paid and creating a 1 per cent savings pot, which very quickly would build up a cushion that everybody wishes to have.
“We should have a rainy-day savings as a de facto policy,” he added.
Dashboard logistics are ‘Herculean’
During the breakfast briefing, Opperman also listed his 10-point focus for the next 25 years.
He said the areas of focus would be: auto-enrolment, small pots, rainy-day savings, pensions awareness, simpler statements, pensions dashboards, superfunds and collective defined contribution schemes, reconsolidation, fuller working lives routine, and charges.
Discussing the pensions dashboards, Opperman said: “Democratising pensions brings it into the 21st century. Putting something on your mobile phone, your laptop, your iPad, that’s got to be the way ahead.”
He said that those putting the dashboard together are “inundated with people who want to put add-ons to it”.
“I fully get that. Let’s just get the product over the line. This is the single biggest computer project effectively that the government is doing and the logistics of it are Herculean,” he said.
He explained there is “slow but steady” progress being made, and that within five years there will be a “very cool dashboard that will be utilised on a massive basis”.
The Department for Work and Pensions published on June 28 a second government consultation into pensions dashboards, which has been criticised over plans to give schemes just 90 days’ notice before the project goes live, with experts warning of a capacity crunch.
Opperman supports auto-enrolment contributions increase
Regarding auto-enrolment, Opperman said he is “utterly certain” minimum auto-enrolment contributions will get to 12 per cent.
“I take it as read that we will do the [auto-enrolment] 2017 review. Clearly, Covid and the rise in national insurance got in the way of that in the short term, but that will happen without a shadow of a doubt,” he said.
Several pensions specialists have called on the government to introduce the reforms mooted in the review, with the Association of British Insurers recently setting a roadmap to increase minimum auto-enrolment contributions to 12 per cent by 2031.
On June 23, the small pots group, jointly convened by the ABI and the Pensions and Lifetime Savings Association, suggested three recommendations to consolidate the large number of small DC pension pots in the UK, one of which includes the “pot-follows-member” solution that has been touted before.
The ABI and the PLSA said that by the end of this year, there are likely to be more than 11mn small deferred pots in total, and without any change in the next 10 years, that figure is likely to double.
It has therefore recommended the pot-follows-member model, which means that when an employee moves jobs, their deferred pension pot in their former employer’s scheme automatically moves with them to the new employer’s scheme, with the opportunity to opt out.
This is despite Opperman dismissing the introduction of a pot-follows-member system back in 2018.
He said he is currently looking to try and find solutions on small pots and said that might involve some wholesale consolidation in some shape or form.
Elsewhere, he added that the complexity of pension statements is large and there is a need for these to be made simpler.
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Opperman said he has tried to get someone to explain a pension statement to him, with sufficient clarity that they could then say that their mum, dad and grandparents truly understood the meaning of the statement.
He said: “They do not, is the honest truth, and as a consequence we are reforming that in the short term. I regard that as a long-term journey and we are in a position that we will clearly start with this in October with a simple statement.”
The introduction of a simple annual statement was delayed by six months after industry concerns about the preparedness of many schemes to implement the policy by the original date of April 2022.
This article first appeared on FTAdviser.com
