Employee Benefits Connect 2016: Interventions are required to help employees save adequately for retirement.
In a conference session titled ‘Using auto-re-enrolment to future proof pensions provision’, at Employee Benefits Connect on 9 March, Amy Hennessy, policy adviser at the Pensions and Lifetime Savings Association (PLSA), discussed how the pension freedoms have changed the risk landscape for savers planning for retirement.
Hennessy explained that freedom and choice has raised potential problems: “Firstly, the savers’ unwillingness to access appropriate advice and guidance to support them in their decision making.”
She detailed findings from the PLSA’s study, Pension Freedoms: no more normal, published in January 2016, into the first cohort taking action in the first six months of the pension freedoms. This found that 24% of respondents paid for advice, 5% spoke to a Pension Wise guide and 2% had a face-to-face Pension Wise appointment.
“While cost is a barrier to pay for advice, attitude clearly is a bigger one. And if savers are unwilling or unable to access advice or guidance, how can we ensure they are supported in making good retirement decisions?” said Hennessy.
Hennessy also discussed how re-enrolment offers a new opportunity to engage those employees that previously opted out of pension saving. Behavioural biases can present a potential problem, she said. “We’ve started to tackle some of these among savers already, with automatic enrolment being used to overcome inertia and default funds being created to overcome choice paralysis.
“But with the advent of the freedoms, we may see new ones, such as egotistic discounting – overconfidence in one’s decisions – and availability bias – purely opting for a product because it is easily available, or bowing to social pressures.”
Hennessy explained the PLSA believes two interventions are required to help people find their way back to good retirement incomes.
“The first is that intelligent design needs to be applied to new forms of income generating vehicles that incorporate sensible income guides, good governance, good communication, good value pricing and good investment strategies as well as long-term protection for savers in much later life. But designing good products is not enough; we need to make it easier for people to find them, and for them to become the norm.
“So the second intervention should help develop smoother, easier pathways from accumulation into these solutions. Trustees, employers and potentially providers should be able to signpost their members to these new solutions, that would meet an agreed set of quality standards.”
Hennessy concluded by saying that the PLSA believes the government now needs to support signposting and accreditation of at-retirement products that meet certain quality standards.
“There are lots of positive messages we can learn from automatic enrolment and auto-re-enrolment, both in terms of design, implementation and success. Auto-re-enrolment offers an important opportunity to reengage individuals with pension savings, however, questions remain about adequacy and pension freedoms,” she explained.