By Fraser Smart
As a firm supporter of automatic enrolment, negative attitudes to government pension policy generally does not bode well at this time. The IoD records that underneath its headline figures there was not just mild apathy but outright hostility.
Last week, the IoD produced a survey entitled ‘(Another) new dawn for pensions’. Its research shows there is considerable disenchantment with government policies affecting pensions. Members are apparently critical of what they see as attempts to limit the potential benefits of pension saving. The pensions system attracted a series of unflattering descriptions, including: ‘a mess’, ‘a fraud’, ‘a farce’, ‘a rip-off’ and ‘a confidence trick’ to name a few examples. Current annuity rates were described as ‘crucifying’, ‘pathetic’ and ‘worth almost nothing’. Disenchantment was also expressed about progressive lowering of the lifetime allowance, frequent rule changes and lack of flexibility. At least on this latter issue it’s hard to disagree. One director captured the general mood by suggesting the government’s approach was less than joined up. ‘This is contradictory. We want you to save for retirement – but we don’t want you to save too much,’ he said.
Automatic enrolment of course began last September, with larger employers being automatically enrolled first. Larger employers generally provide pensions as part of their package for employees and were unlikely to attempt to avoid the legal requirements. Not so for smaller employers it seems. Smaller employers will not begin automatically enrolling until 2017. One such employer said: ‘We plan to make every effort to avoid this piece of legislation, designed solely to allow the government to steal more money.’ And another said: ‘We will not be spending any money doing something that we do not want to do. Catch us if you can.’
The IoD records that the suggestion of willful compliance with automatic enrolment is something new for 2013 and possibly follows greater awareness amongst smaller employers of their legal obligations. Let us hope the members concerned are a small minority as the IoD says: ‘We cannot infer from these comments that such attitudes will be widespread, but the research gives a sense that as employers – and particularly small employers – start to comprehend the enormity of the task in front of them, hostility to automatic enrolment might increase.’
Pension saving with the demise of defined benefit schemes definitely needs a new dawn. The realisation is suddenly hitting people that they are going to have to work longer and save harder if they are to enjoy even a reasonable period of retirement. Automatic enrolment, whilst far from perfect, is a genuine attempt to help people save for retirement. Yes, contribution rates will have to go up (as they have in a similar system in Australia), and yes, automatic enrolment is not enough on its own. But, we have to start somewhere if this new dawn is not to turn into a sunset for pensions.
Fraser Smart is managing director (Europe) at Buck Consultants
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