Three years into auto-enrolment – 5 reflections on how the industry must step UP

Here are five thoughts about the industry that has been created and how it can improve.

1. Even as we approach the third anniversary, everything I read and see about AE solutions focus on compliance issues around employers meeting their obligations. In the industry they call it FUD (fear, uncertainty and doubt) - a great way to get companies to part with their money. In my view that is not the point here. The point is to ensure employees have a decent retirement and we need to focus 90% of budget on engagement and education and 10% on administration – not the other way around.  I fully acknowledge that the government must take some of the blame for making the rules as complex as they are, so let's simplify and focus on the important bit. This should be an industry obsessing about employee outcomes not ticking boxes.
   
   
2. Let's take a 1,000 employee organisation as an example and assume the average salary is £30,000. If the employer is paying a 5% contribution, that is £1.5m per annum in cost. What else does a company spend that much on each year without demanding a Return On Investment? The pension industry seems to be unique in its ability to prove no gain for the employer from an extraordinary spend. We need innovation and accountability to ensure that a lavish employer spend will receive proof of value.
   
   
3. Research we have completed illustrates that employers are investing less than 1% of pension spend on education and communications. But then why would a company spend any more than that when there is no tangible proof on ROI? We need to take inspiration from the US where they take education on their 401k plans exceptionally seriously and have proven a 6:1 ROI broadly split between employer and employee. If in another three years we don't have a consistent methodology for proving the return on spend the industry will have failed. 
   
   
4. I would like to see competitive tables published for the different pension providers, consultancies and advisers on how good they are at engaging employees with their pensions. And as a starter my measures would be firstly the % of employees contributing above the minimum requirement and secondly how many employees had selected funds outside of the default fund. Those two measures prove engagement and a well educated workforce surely? Those two measures will mitigate corporate workforce planning risks and ensure there is understanding and appreciation of employer spend. For an industry that often bridles at the old accusations of opacity, this would surely help create clarity for employers choosing who they would like to work with. Right now the industry is a huddled amorphous mass with little point of difference.
   
   
5. Whereas financial education may previously have meant teaching employees about annuities and draw-down, Pension Freedoms now mean employees have to be educated about all of finance. If financial education programs aren't holistic and  including education on all financial matters they are not effective. I would also like to see a clear admission from providers who are only interested in wealthy employees. That is fine and wealth management is great, but we need solutions for all employees – rich and poor, young and old. I would suggest a requirement or charter that providers agree to, that offers clarity on their services and intentions.

I know I haven't even started on pensions and the young, how we can create a retirement savings vehicle to solve the housing and elder care crisis and why the government must incentivise employers to help their people.

Maybe more of that next time....

This article was supplied by Nudge.