There is no need to get out the bunting for auto-enrolment says Teresa Hunter
If car crashes were an Olympic sport, the pensions industry would clean up in gold medals. It takes skill to consistently originate good ideas only to turn them into national scandals.
Without wishing to detract from their glory, it is only fair to point out pension companies have not achieved this accolade unaided. Politicians have more than done their bit.
Remember the pensions revolution of the Thatcher years, accompanied by high profile television ads paid for by Government, of a man in a straight-jacket? Everyone should break free and cast off their chains was the clear public service message.
Yet it was insurers who had to foot the bill when the public followed the message and they were forced to compensate victims of what was found, with hindsight, to be systematic mis-selling.
With this month’s arrival of auto-enrolment, it is clear we stand at the dawn of another such brave new epoch. But whether we are heading for a beautiful age of Aquarius, or less inviting Uranus, is less clear.
To have got thus far is an incredible achievement, for which politicians and the pensions industry should be congratulated. It has taken much blood, sweat and tears.
But in all probability, the job so far has been the easy bit, not least because the central players, the great unwashed, have been entirely untouched by the process.
It may yet come as a shock to many, when their wage packets are hit by new and rising deductions.
But that will be as nothing, compared with the trauma they will suffer, when they come to retire on a pension based on their auto-enrolled contributions and default fund.
If you tell someone that you are about to solve their pensions problems and give them a decent pension for the first time in their lives, they will either believe you, or fall about laughing.
The second group will opt out, while the first will throw better judgment and experience to the wind and trust the Government message.
Are they wrong to do so? At current contribution levels, probably. Government itself admitted in a parliamentary answer that someone on average earnings who participates for 20 years in auto-enrolment as currently structured, might be a fiver a week better off in retirement.
Happily, I will not be around in 20 years time when this message finally hits home. But plenty of you will be. So it is in your interest to make auto-enrolment work. As presently constructed, I certainly wouldn’t put money on that happening.
Increasing contributions and member engagement will be crucial if it is to the produce a decent retirement income. However, advisers tell me that having lit the “auto-enrolment is go” touch paper, the Department of Work and Pensions seems intent on standing back for a while and enjoying the view. Possibly for quite a long while.
The current regime will not be fully bedded in until 2018, so any hope of even thinking about improving the current system, is probably some 10 years off at least. And this is causing grave concerns for professionals, who understand the grim limitations of the current arrangements, and who are sufficiently capable and courageous to be able to turn the clock forward 20 years.
What they see is making them nervous, not least because it includes their companies getting hung out to dry all over again.
They are particularly worried at signs that the fight is going out of DWP. They believe it has little appetite left for any renewed conversation about where the correct level of contributions should be, or how employees can be encouraged to individually increase their pension payments, without compulsion.
Hardly surprising, as we have yet to see how the deductions in spending power, which auto-enrolment entails will hit the economy or the recovery.
Professionals will have to work hard to generate sufficient interest in these new work-place pensions, to encourage members to make realistic contributions over a sufficiently long time horizon, if they are to avoid another car crash in twenty years time.
Take a tip from me. Erect your barriers now. Because in 20 years time, today’s leading politicians will be dust.