July pensions supplement: Ros Altmann—we must halt the decline in saving
Saving more must become the new norm
After the last general election, David Cameron picked Ros Altmann to become the new Pensions Minister. The position is of immense significance, as it comes with responsibility for overseeing the next stage of the government’s auto-enrolment programme, as well as the introduction of the new rules on pensioners’ increased access to their pension savings, announced by George Osborne last year. It is a time of crucial importance for British workers and retirees. Altmann spoke exclusively to Prospect on the challenges she faces in her new role.
Pensioners have new freedoms and will need advice. How can it be provided?
The new pension freedoms are giving savers unprecedented access to their money, placing the individual firmly in control of their future retirement plans.
But if people are to make the most of this, it is important that they are given effective guidance so that they can understand what they need to consider before making any firm decisions. This is where Pension Wise comes in. Pension Wise is a free and impartial guidance service that helps people approaching retirement to understand their options.
It is available online, over the phone and face-to-face, with pension savers near or over the age of 55 offered the opportunity of an individual appointment where they can discuss their priorities.
At the end of every guidance session, the pension saver will receive a personalised statement of the areas covered, with suggestions for next steps.
It is important to remember that Pension Wise is a guidance service; staff don’t offer financial advice and won’t recommend specific financial products.
But they will help people to understand the importance of considering paying for independent financial advice, and how to find it.
What is the take-up for automatic enrolment and what is the cost for business?
Automatic enrolment is playing an important role in helping more people to save for retirement without all the hassle of setting up their own pension arrangement, and with the help of extra money from their employer.
By 2018 around nine million extra workers will be benefiting from employer contributions towards their pensions thanks to this policy. If we get this right, we have the potential to ensure that building up long-term savings for later life can again become the norm.
Of course, this does mean new responsibilities for employers. So far, only large and medium-sized businesses have had to auto-enrol their staff, but the focus is now on small businesses and “micro-employers,” which will join the scheme between now and 2018.
I appreciate that micro-employers don’t have the same resources as big businesses. I also know that, while easy for the employee, automatic enrolment is not entirely straightforward for the employer, so I am committed to ensuring that support is available.
Ultimately though, all employers have to consider a whole multitude of factors: tax, national insurance, and provision for statutory sick leave, holiday and maternity benefits. Adding pensions to this list is in the interests of inter-generational and financial fairness.
It is important that workers in the opportunity to save into a workplace pension.
How do we deal with the fact that those most likely to opt out are the ones who would most benefit?
All of the evidence so far seems to be pointing to the exact opposite.
Just 9 to 10 per cent of people who are automatically enrolled are choosing to opt out and younger workers are the least likely to do so.
While pension membership has risen across all age groups, the largest increase has been with 22 to 29 year olds, which shot up from 36 per cent in 2013 to 53 per cent last year.
I cannot overstate how important it was to halt in its tracks the decline in the numbers of people who were saving for later life. But we also need to help people save more than the bare legal minimum.
People are living longer than ever before and everyone must be given as much support as possible to put something away during their working lives so that they can enjoy their retirement without having to worry about how they’re going to pay for it.
Once all workers are enrolled we will want to encourage everyone to save more over time whenever they are able to.
Automatic enrolment’s offer of free money—everyone who stays enrolled will be getting £1 extra for every £1 they invest—may help to explain why opt-out rates are as low as they are, but it is also important that the pension arrangements that people are saving into are of good quality and offer fair value for money.
How can we prevent annuities from being mis-sold?
It will be important to ensure that annuity companies are taking some responsibility for annuity sales.
The new “second line of defence” measures can help to provide better risk warnings and suitability questions, but I also believe that we must do more to improve financial education and engagement with the general public if we are to avoid the mistakes of the past. Pension Wise guidance will certainly help here. But clearly some consumers may have bought products in the past that did not represent the best value, or weren’t particularly well suited to their needs, and Financial Conduct Authority investigations into this issue are ongoing.
The Pensions Advisory Service offers free guidance across the range of issues affecting the pensions industry, including on matters to do with mis-selling.
Anyone with concerns can call 0300 1231047 or visit www.pensionsadvisoryservice.org.uk
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