The more people save, the less we seem to be saving.
This seems to be the paradox facing auto-enrolment. And if the doomsters contemplating the impending changes to tax relief are right, not only will auto-enrolment reduce per capita spend on pensions by corporates, but George Osborne will reduce the incentive for individuals to save for the long term till we are left with virtually no pension system.
There’s no doubt that more people are saving as a result of auto-enrolment and no doubt too that the impact of the 1+1 saving regime for the newbies has diluted contribution rates to workplace pensions.
But does this mean that something is wrong? Or does it mean that something is wrong and is being remedies.
I incline to the second view. In America, where employer contributions have always been lower than ours, there is a lot of interest in the broadening of the savings base from auto-enrolment. the 401k tax system incentivises employers to include low paid workers but it hasn’t achieved what auto-enrolment has.
What’s more, auto-enrolment has not compelled anyone to stay in a workplace pension a moment longer than they wanted. It cannot properly be called a tax or an infringement on our spending liberties.
It has democratised savings bringing Steve Bee’s Fish and Chip Shop Owner and Neil Esslemont’s “Flo the Florist” into workplace pensions.
We have yet to see the reactions of the literally hundreds of thousands of employers to the duties they will be taking on next year. Putting aside the inevitable casualties, I am looking forward to some great conversations with employers and their agents approaching pensions for the first time.
I write guides like this because I am genuinely excited by the choices available to employers and their advisers.
That’s because, behind the scenes, some of these workplace pensions have some great things going for them.
I was looking over the weekend at the investment strategies employed by a variety of providers including Legal and General, Standard Life, Smart Pensions, BlueSky ,NOW and NEST.
All employ credible strategies designed to meet the needs of their members. From the sophistication of Standard Life’s Gars, to the target dated approach of the target dated funds of BlueSky and NEST. From the massive weight of NOW’s leverage on Danish parent ATP to the sheer scale of LGIM’s global operations, ordinary people are getting to invest in strategies that should stand the test of time.
The costs of investment have plummeted and competition is keeping costs low. As providers discover the new technologies, we are seeing partnerships that should bring innovation to the way we manage our savings and spend our pots in later life.
This is the remedial action pensions needed, all these providers, and many more, are bringing a fresh approach to retirement saving which will be enjoyed by the whole adult working population in time.
There can be no better incentivisation to save, than the confidence that your money will be invested wisely, at a low cost and with the options to spend your money as you want. These savings are not built around tax giveaways but on the assumptions that whatever we’re in, it’s pretty good.
The changes that we are going through, and will continue to go through as we find remedy for the pension mess we found ourselves in , will cause paradoxes. We will save less to save more and I’ve no doubt that weaning ourselves off our current crazy system of tax reliefs will mean more of the same.
But the evidence of our past and of many of our competitor nation’s present, is that if you can get confidence into retirement savings, people will save, and to adequate levels.
A post on twitter says it very well
Just telling people to save, without giving them confidence about their savings, is not going to work.
People need a tax system they can trust, greater certainty about outcomes and confidence that the plans into which they invest their money are working for them, and not just for the financial services industry.
That’s why we say that Restoring Confidence in Pensions, is the Vision of the Pension PlayPen!