Get ready! In fact many of you have gone but there’s no denying that Auto Enrolment has arrived.
Please forgive me if I’m not whipped in to a frenzy over this poorly thought and ill-conceived piece of legislation. But if I wanted to create a real sense of social reform to encourage people to save for their old age, I would not have introduced the Pensions Act.
First of all I don’t think the current pension system in the UK works. The state pension was a Victorian solution and the rise and demise of the company pension schemes has meant that we are essentially coming full circle. The big question for me and my peers is not can I retire at 55 but how do I ensure that I have sufficient funds to retire when I want, or when I’m forced to retire.
It’s estimated that at least six out of ten people aged between 18 to 65 are not saving for retirement. Research from Scottish Widows found that despite less people saving, expectations for income in retirement are still increasing. In order to achieve a reasonable pot, which would need to be well in excess of £400,000, a 30 year old saver would need to save £12,000 every year until retirement.
There’s something very wrong about pensions at the moment. When I say wrong, I mean I don’t think that they’ve outgrown their usefulness. A paltry 1%, which is what I anticipate most employers will go in for, is not going to cut it.
Whilst there is a clear case to help promote saving, I don’t believe for a second that the unilateral imposition of a company pension scheme is the answer.
First and foremost a quarter of all business anticipate that the introduction of the company wide pension schemes will impact the on pay, bonus and other benefits. I’d fully anticipate that this will have a knock on effect in both 2014 and 2015 for those enrolling this year.
In addition, the many of the schemes that pension providers are offering are simply uncompetitive and sub-standard. This isn’t just the fact that due to the increased demand there has been a detrimental impact on the annual management charges. Many providers tried to justify the increased costs with a promise of a fully managed end to end administration process.
The reality is that that many Pension providers aren’t equipped to take on the work. We have worked with an intermediary and they secured a solution which was fully administered. Over the last twelve months this added value service has been eroded and eroded. We haven’t enrolled our staff yet! The reports that we have received back are pension providers are overrun and unable to keep up with the pace of work. We have already taken a decision to run as much of the administration in house as possible.
The majority of businesses that are auto enrolling this year are the larger SME’s, these are businesses that have generally heading in at the legal minimum requirements. What is difficult for many is trying to second guess the unknown, the National Employment Savings Trust estimated that 30% of people would opt out. Currently after the first waves of AE it appears that this is actually running at 10% to date.
As much as I have complained, there is no turning back. But the future we need to address is very different from today. I believe the social mobility we have seen through accumulated wealth will change, and children will increasingly become less affluent than their parents. The signs of this are clearly visible with Shelter reporting that more than a million people took pay day loans to pay their mortgage.
Something needs to be done to look at the how we encourage individuals to save in an effective manner that will allow this ageing population the financial stability to retire. The Chancellors Autumn Statement outlined plans to increase the state pension age to 68 in the mid-2030s, 69 in the late-2040s and 70 by the 2060s.
I’m not saying they’ve got it wrong by trying to agitate some saving but I think the solution is far too limited and short sighted. The reality of what we are facing is that on current trends by 2025 there will be 13.9million people aged over 65 and 42.1 million people of working age. With a ratio of 3 to 1 and an ageing workforce who have to work, this is a fairly potent mix.