The UK is not saving enough for its old age, and millions of people risk facing a hard time in retirement. The good news is that the biggest pensions reforms in decades have been rolling out since October this year. These reforms, known as auto-enrolment, will automatically put all workers into a pension. They are expected to bring up to 8 million people into saving for retirement, many for the first time.
But these reforms are unfolding at a difficult time, with people’s confidence in pensions at a low level. The recent stockmarket turmoil, the controversy surrounding pension fees, tumbling annuities and pensions tax changes are all contributing to this lack of trust. This difficult climate risks undermining auto-enrolment. We need to do all we can to prevent this from happening.
The Government has been doing a lot to help re-instil faith in pensions. It has, for example, promised to make our State Pension more generous and less complicated, and has committed to cutting pensions regulation. The pensions industry has also been taking active steps to tackle the lack of trust. For example, the National Association of Pension Funds (NAPF) has recently published a Code of Practice on defined contribution pension charges, which will help employers pick a pension with lower charges for their staff. The Code, which the NAPF developed with employer groups, industry members and consumer associations, is a huge step forward in shining light on hidden pension charges.
The Pension Quality Mark (PQM) is another important initiative that aims to improve standards in UK pensions. Launched by the NAPF just over three years ago, 166 companies have achieved the standard for their staff pensions, meaning that about a third of a million employees are saving into quality pensions.
Among the PQM holders are well-known organisations, including E.On, BBC, Michelin, Kellogg’s L’Oreal and Age UK. Trade bodies like the CIPD and Institute of Directors also have the mark for their schemes.
The PQM is a standard that recognises companies that are offering good quality defined contribution (DC) staff pensions. It is given to those pension schemes that have good pension contribution levels, good communications for staff, and good governance.
Firms have responded to the PQM initiative enthusiastically, with many of them having gone the extra mile by upping their game to get the mark. This is because these organisations understand the power that pensions exert in recruiting and retaining staff, and want to make it very clear that they offer a good staff pension.
The changes to pensions standards that companies have made to qualify for the mark include lowering pension charges or making them clearer; improving communications with scheme members; and strengthening scheme governance. Saffron Building Society, for example, renegotiated the charges for people who stop paying into their pension and secured a better deal for them.
2012 has been an important year for pensions in the UK as several positive developments have unfolded. But we need to do more to solve our country’s lack of pensions saving. Let’s build on this year’s good developments to make 2013 the year in which we put pensions saving back on the national agenda.