Auto enrolment | People's Partnership

Our role in helping savers fund their future

We revisit our ‘New choices, Big decisions Pension Personalities’ research and the savers most at risk if we don’t find simple ways of communicating the complexities of retirement options to them.

A great success, but what now?

Next year marks the 10-year anniversary of auto-enrolment (AE). It’s been a resounding success, having helped more than 10 million people to start saving for retirement.

But more than 6 years after the introduction of pension freedoms, significant concerns linger about how to ensure savers make wise retirement choices.

Given the success of auto-enrolment was based on inertia, it would seem odd that the pensions industry would assume all savers should suddenly understand the complexities of retirement options and take control of their retirement planning.

It’s alarming to see how many savers are sleepwalking into retirement. To avoid poor saver outcomes, what’s needed are simple, good quality products that meet AE savers’ needs – built to provide a sustainable income to last their whole retirement. These factors combined should further support and help them to avoid making ill-advised decisions.

New choices, Big decisions

In our quest to make pensions work for everyone, our New Choices, Big Decisions Pension Personalities Revisited research showcases the challenges faced and decisions made by many approaching retirement.

We’ve followed a group of people since pension freedoms threw the shackles off how they can take their pensions savings and found they divided into 7 subgroups, with distinct characteristics. We’ve given these subgroups personas. Let’s consider a few that concern us the most.

Leave it Larry and Linda

Are so overwhelmed by the complexity of pensions information that, recently, they’ve decided to leave their pension savings untouched. Their savings were ‘out of sight, out of mind’ unless a life event – typically illness or redundancy – changed their plans. Lacking information, they’ve not made any decisions about their pensions for now.

Spend it Simon and Sally

They were initially pleased to take their 25% tax-free cash to spend on holidays, home improvements, or new cars but haven’t planned how to manage their pension pot. Instead, they’ve just rolled it over with their pension provider into a drawdown product and withdrawn lump sums when required. This group are unaware of investment risks and their own likely longevity. Our estimates suggest that around 3 in 4 of this group will likely exhaust their pension savings before they die.

Risky business

Decisions are difficult for savers. The here and now is easy to understand, whilst years into the future are hard to imagine.

Lack of understanding could lead people into making short-term decisions that have them:

jeopardise their long-term financial wellbeing
lose potential returns
pay extra tax
cease pension payments
or get scammed.

Thanks to our personas research, we’re asking the questions: ‘Are we doing enough?’ and ‘What can we do differently for our 5 million plus members?’

Recently, we presented our ‘A journey not a destination’ webinar, which looks at the findings of our ‘New Choices, Big Decisions’ research in detail – a recording is available via the link. It’s essential viewing to help everyone understand how savers approach retirement. We believe the findings show members need simple, good quality products to help them achieve a sustainable income which lasts throughout retirement.

The industry must help savers, many years before they’re planning to retire, realise it’s not a future that can fund itself.

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This article was written when we were B&CE, before we changed our name to People’s Partnership in November 2022.

Why an overhaul of annual statements is the first step towards better disclosure of information

More than three years on, the 2017 review of automatic enrolment is beginning to have an impact on the sector.

The Department for Work and Pensions (DWP) remains committed to the main proposals in the medium to long term: removing the lower qualifying earnings band and lowering the age threshold to 18 but we expect these in a future Pensions Bill. They seem to have been justifiably delayed by the fallout from the pandemic. However, the Government has chosen to force the pace on the main proposal from the review’s engagement strand, the simplified annual statement.

This simplified annual statement is a standardised annual statement. It covers two pages and is designed to show the information required by law to be in a statement in a way that enables comparison between different schemes.

End the use of jargon

Between the end of 2017 and autumn last year, the Pensions Minister Guy Opperman and the DWP tried to encourage the industry to adopt the simplified statement, with the former expressing his disapproval at ‘jargon-filled, confusing statements’.

While a few providers have adopted the new document, most have stuck with their original statement. More than a year ago, the DWP consulted on the way forward and published its response earlier this year, which served to underline how the department has lost patience and is now looking to mandate the statement, meaning that providers will be compelled to introduce it.

So how has it come to this? Providers have three main reasons for not adopting the statement. Firstly, statement overhaul is regarded as being too expensive. One of the major life houses completed a full revision of its statement recently at considerable cost. It’s hard to make a case for putting the statement up on bricks again so soon after completing a major revision of product documentation.

Secondly, some companies have expressed concern over the quality of the simplified statement. Innovation is increasingly a feature of our industry and there’s an increasing move towards online and video communication of core pensions information and there are some who believe that the way they do things now has advantages over the simplified statement.

The introduction of dashboards

Lastly, there are pensions dashboards, which are likely now to go live from 2023 and will allow people to see their pensions entitlements together on one online portal. With high levels of internet access now throughout the UK population, it seems probable that dashboards will replace both paper and electronic statements as the main way that people get information about their pensions.

Dashboards have the potential to completely reshape the way that people interact with their pensions and may render current approaches to communications with members redundant. An obvious question to ask would be ‘why do you need a paper or electronic statement if you can just look up the relevant information online with a few key strokes?’ with the follow up of ‘when did you last look at a paper bank statement?’ What really needs to be considered with the introduction of dashboards is a full review of all the information we, as an industry, share with pension savers, not just annual statements, and when that information is released. Instead of sending an individual annual statement, why not point them at a dashboard so they can see all of their pensions in one place?

We’re now waiting for the DWP to bring forward a new consultation paper on the simplified statement and this could in turn be followed by regulations which might mandate them.

This should prompt more debate, not only about the adoption of the statements, but also about the disclosure of pensions information more generally. Hopefully the new consultation could result in improved annual statements becoming a stepping stone to improving the way that the pensions industry communicates with retirement savers as we move into the dashboard age.

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This article was written when we were B&CE, before we changed our name to People’s Partnership in November 2022.

How UK pensions are withstanding the fallout from coronavirus

Back in March when the world was a genuinely scary place, there was feverish speculation about what the coronavirus pandemic might mean for the pensions industry.

Both privately and publicly, fears were expressed that the economic damage wrought by the both the initial financial shock and subsequent fallout from lockdown measures might lead to a significant exodus from pensions, as financially stressed savers either ceased contributing or drew down on their retirement savings.

In the months that followed, this was a trend that we simply couldn’t see in data relating to our 5 million members. To be sure that what we were experiencing was not idiosyncratic, we commissioned YouGov to conduct a national survey of more than 2,000 UK adults.

We’ve just received the YouGov results and they’re very clear: at this stage at least, those we surveyed with a pension haven’t revised their pension saving habits much, despite the country experiencing its biggest short-term slump since records began and an accompanying rise in unemployment – the largest in 11 years.

Survey findings

According to the survey, the majority (82%) of UK retirement savers don’t appear to have made any changes to their pensions since March 2020, despite the fact just over 4 in 10 of all workers have been impacted by the coronavirus pandemic. Only a very small percentage (3%) have stopped their pension contributions altogether during the past 7 months, while just 2% said that they’ve withdrawn money from their retirement savings.

The survey also indicates that while 2% cut back on the amount of contributions they made, a further 2% have increased their contributions. Of those who took part in the survey, only a minority, 1 in 7 (14%), have even checked the value of their pensions savings since the UK went into lockdown. The same research also reveals that 45% of UK workers have been affected by coronavirus in some way, which includes being furloughed and having wages or hours reduced.

Despite recent research, conducted by a financial services company, suggesting that 1 in 4 people have either reduced or paused pension saving, the YouGov data suggests the effects of the virus on retirement plans appears to be very limited. 1% have been prompted to delay their retirement plans, while 1% of all UK adults with a pension retired earlier than they’d anticipated.

Workplace pensions aren’t of course the only type of pension in the UK and pension organisations may witness different behaviour depending on the type of category of saver for whom they cater. In particular, the experience of those organisations which primarily serve the self-employed might be different from those which cater for employees.

Support from government

Government support for the employed has been an important factor. Subsidising employment has meant that far fewer employees have been confronted with a choice between prioritising short-term needs to generate immediate replacement income over longer-term retirement needs. Subsidy also extended to pension contributions for much of the year. Some categories of the self-employed haven’t benefitted from government support and this may have had an impact.

The survey results indicate how robust the design of auto-enrolment has been. Faced by a once-in-a-century crisis, it has held up very well. Employees who were at an age where they could have withdrawn pots and crystallised nominal investment losses, didn’t do so. Employer contributions and tax relief have helped encourage people to continue to save, even in difficult times.

While the hardship for many is far from over, the early signs suggest that the British public remains steadfastly committed to saving for retirement.

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This article was written when we were B&CE, before we changed our name to People’s Partnership in November 2022.