Back to the Future

Ian Shand

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Spence & Partners latest blog for Pension Funds Online –

What a year it’s been so far; austerity measures being relaxed, an economy on the up, Team GB achieving sporting excellence, big royal news, tension in Korea, ground-breaking science and technological progress abound, and Ian Fleming’s James Bond is a massive hit…oh yes, 1953 has been quite a year. Just around the corner, Bill Hailey and the Comets’ “Rock around the Clock” is about to usher in a brave new world of teenagers, Sputnik and Elvis. The grey world of the post-war period is most definitely over and the nation is about to walk blinking into a bright, technicolour future.

The sense of national purpose and social cohesion, which gave birth to the National Health Service (NHS) and the welfare state, may seem alien to today’s more cosmopolitan, more cynical times, but 1953 probably exemplifies a time when people had a more genuine sense that, as a nation, we were ‘all in this together’. It was the time of big projects and big ideas. Some, like the NHS, have become embedded in our collective consciousness as treasured national institutions, while others have been long discarded or forgotten.

If you were a teenager in 1953 and reading this, then first of all, there’s every chance that you are now benefitting from one the many pension schemes created by paternal employers or the state in the late 1940s and 50s. Secondly, bravo for turning on your iPad or PC without the aid of the grandkids. For reasons too numerous and complex to discuss here, defined benefit (DB) schemes have been in steady decline, and in overall terms, the numbers of people contributing towards their retirement through employer sponsored pension scheme membership has been spiralling downward. Recent research from the Office of National Statistics has revealed that 2011 saw active pension scheme membership fall to its lowest level since 1953. While this statistic may not be all that surprising, a big idea for our time, auto-enrolment, may be beginning to re-invigorate the membership of private sector pension schemes.

The Pensions Regulator (TPR) has conducted analysis of the initial group of employers who took part in the launch of auto-enrolment, and it reveals that over 1,000 employers have successfully registered and that at least 1 million more people are now saving into a workplace pension scheme as a result. Encouragingly, where statistics were available, the suggestion is that opt-out rates among those under 30 are only around 8%, and for those aged 30-49, only around 9%. Inertia may predictably play a large part in this, but there are clearly grounds for optimism. Overall, awareness and compliance by employers has been characterised as being ‘near universal’. I should point out, perhaps unsurprisingly, that opt-out rates among employees aged over 50 are higher. Many of these employees may have existing pension arrangements, or, being closer to normal retirement age, may view the small initial contribution levels as less likely to result in a worthwhile pension benefit.

The first phase involved the largest employers, and while the initial findings are very encouraging, the expectation was that these employers would be well prepared to meet the requirements of auto-enrolment. The true test may come as the staging dates arrive for medium and small employers. The employees of small and medium enterprises (SMEs) may be the very people that auto-enrolment was designed to reach, and these employers may require a far higher degree of support to meet their auto-enrolment obligations. Whether the initial momentum can be maintained, and auto-enrolment proves a long-term success, only time will tell on that one. However, given the initial successes of auto-enrolment, perhaps now is the moment for some sunny optimism.

Fast forward another 30 years in your flux capacitor driven DeLorean, and you may well find a nation benefitting from the re-boot of pensions saving, with auto-enrolment firmly embedded in the fabric and culture of the UK workplace. As Marty McFly said after unleashing a blistering Eddie Van Halen guitar solo on a room full of bewildered 50s teenagers: “You guys aren’t ready for that yet, but you’re kids are gonna love it.” Surely it’s just a matter of time.

Pension Funds Online