Auto-enrolment is a  big win for welfare in the UK.

Getting the 1.2m employers in the UK in the habit of managing contributions for their employees and workers means that for all but a hardcore of self-employed professionals (who can look after themselves), Britain’s workforce has a means to save.

The Government can now see who chooses not to save and can create policy around behaviours. Scary as this sounds, the opt-out can and will become a stigma for welfare in the way the CCJ has become a stigma for credit.

They have a national flex platform with some great MI (AE’s sting in the tail)

With this platform in place (and it will be within four years) , the Government can push on. The workplace is a middle-ground between private and state. The Government’s agenda for private provision has been proved to have failed. The cost of distribution of personal pensions meant they became entirely unfit for purpose. Auto-enrolment cuts the distribution costs to a minimum.

The workplace is in fact the Government’s chosen distribution platform for second tier pensions. Wary of the policy failure of SERPS/S2P, the workplace not only trumps personal pensions, it provides a way out of the increasingly labyrinthine mess that the state second tier had become.

But what next? While auto-enrolment has so far tackled the savings issue (probably the hardest), it has done nothing to tackle the outlying societal risks that worry us all. What I’m referring to are the remote but frightening possibilities that we might die tomorrow, live to an impossible age and spend our final years in expensive nursing homes.

Because these risks are exceptional (most of us won’t suffer them) they are insurable. What we are seeing in working pensions is a massive concentration of pension provision around a small number of providers. In practice there are only around twelve mass market pension providers left in Britain today and if we put aside the arcane differences between a NEST master trust and an L&G GPP, we end up with a handful of massive pools into which the nation’s wealth will congregate.

I came across reference to this memo in my inbox yesterday. I won’t mention the recipient or the sender (not important). What is important is that people within policy circles can now seriously think about insurance in the middle ground.

I know this will displease many IFAs who still consider selling lifecover , annuities and LTC/CI/PHI cover to the mass market “what they do”. The truth is that you are as likely to get trumped by workplace insurance as you are being by workplace pensions.

A suggestion for those looking at private pension policy and long term care funding within DWP and HMT.

Would you mind passing it on to the relevant people?

I’d discuss with insurers the pricing and feasibility of combining:- life cover if die before retirement- lump sum paying out at the earliest of age 85 or needing long term care.

I’d envisage this insurance was paid for by employers as part of the pension scheme.  If this could be added to the quality standard for auto enrolment schemes, perhaps the first increase in AE minimum, then the soft compulsion would help with the pricing.

That way, care costs plus living costs if survive past age 85 are insured from starting in the workplace.

People can then plan retirement savings on the basis that they only need to cover the period up to say age 85.

You’d have effectively an insured DB scheme for the bit where insurance is really needed funded over a 45 year period. Making it (semi) mandatory would be important to keep the insurance costs down.

This is not leaked Government policy, I am not suggesting we are anywhere near a new system of funded social insurance.

But the memo indicates the blue sky thinking that comes out of having a workplace welfare platform.

What is important, and this is why we need to do the heavy lifting of installing auto-enrolment, is that this platform is flexible enough to deliver the needs of the many without compelling those who want to opt-out to do so.

If an employer has the capacity to collect contributions for those who are “in”, the apportionment of those contributions between a savings and a protection pot need be no further burden for the employer.

Enlightened insurers are already waking up to the opportunity and are turning their strategic thinking towards managing the massive pools of risk and the substantial contributions to insure that risk.

We may not see the results of this research tomorrow, but I am convinced that if we can make auto-enrolment work, we will have built a sustainable welfare platform for the mass market of people in the UK for whom the financial services industry has currently, no effective means of distribution.

This article was first published at https://www.pensionplaypen.com/top-thinking/show/116/a-workplace-welfare-platform.html