Auto-enrolment at risk of becoming pensions’ ‘five-a-day’ campaign

Will Davison

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UK pensions actuaries and administration specialists Spence & Partners today said that a greater part of the communication around Auto Enrolment should be to emphasise the need to contribute more than the minimum requirement. This will go some way to help avoid understating the true contributions required for members to achieve their desired retirement fund.

Commenting, Marian Elliott, Director at Spence said: “Auto Enrolment is starting to look like the ‘five-a-day’ fruit and vegetable campaign. The government set the nutrition figure at five-a-day as it was felt that it was too much to ask for people to engage with the real required amount, which is around nine-a-day. Whilst this campaign has inevitably helped the overall situation on healthy eating, it is now so embedded as a figure that people do not seek to find out the amount they should truly be eating for a healthy lifestyle. So too with contributions. If the industry place too much emphasis on the minimum figures as good retirement provision, then members are less likely to consider contributing further to actually reach their pension goal.

“Auto Enrolment is clearly a good thing for this industry and the population at large, however there is a huge potential pitfall when it comes to communication surrounding the 3% contribution.  There is a very real danger that people will think that by being enrolled and contributing this amount they have ‘dealt with’ their pensions and think no more about it.  The reality is that for most people 3% will not come close to even remotely covering the standard of living they need and indeed expect in their retirement.

Elliott continued: “The truth of the matter is that total contribution rates when employee and employer inputs are combined should be something more like 15 to 20% for most members, in order to give them a pot in retirement that will sustain them.  This is not being communicated currently, most likely due to constraints surrounding being perceived to be giving financial advice or the fear of scaring members into opting out. However, it is vital we get a more realistic ball park figure out there for people sooner rather than later. Members should know that their Auto Enrolment contributions are a minimum and in no way reflect the level needed for a healthy pension pot at retirement – for that the member must contribute much further.”

“Improved communication is going to be vital to the long term success of Auto Enrolment and employers have a duty to invest in good member communications, with visuals and messages that speak directly to them in a way people can relate to. Only then might we have a population who is properly engaged with their pension and saving a reasonable amount.”