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Auto-enrolment was a success but political parties now need to revisit it or risk a pensions timebomb, according to Ian Bell, head of pensions at RSM UK.
Speaking to FT Adviser, Bell discussed the need for a cross-party approach to pensions and called for parties to stop using pensions “to win votes” and instead take a long-term approach.
He said: “Political parties use pensions to win votes and they often use pensions from a tax raising perspective, which is short term type stuff for them to benefit from.
"When I came into the pensions industry it was quite healthy and flourishing and the UK was renowned globally for its pensions industry.
“When you go through your career, you hope to leave things in a better place than when you started. But I don’t believe, when I end my career in the next few years, we're going to be in a better position unless political parties can come together to actually start talking about pensions as a long-term issue.”
Bell said the last time parties came together auto-enrolment was introduced which got people contributing 8 per cent to their pensions but he warned that was no longer enough.
“We're now 10 years plus since auto enrolment was introduced, and I often hear it quoted as being a success. Now that depends how you define success.
"The definition people use for it is that we've now got however many thousands of working people contributing to a pension scheme they wouldn't have been doing before auto-enrolment.
“But if you look at it another way, you have members of the working population contributing to an auto-enrolled pension, believing that that's going to be suitable for them and it will give them a good retirement."
Bell pointed out that contributions needed to be increased from 8 per cent to 12 per cent but this could only be achieved if all parties worked together otherwise the population was heading for a “pensions timebomb” once auto-enrolled people start to reach retirement age and realise they do not have enough to retire.
“One of the challenges with anything, as we've seen over the years, is pension ministers come and go too soon. They use it as a platform and as a stepping stone to something else.
“The minister with the most longevity in recent times was Steve Webb, who is no longer an MP, but he saw through auto enrolment, and left a real legacy from an industry point of view. But in terms of current manifestos there's nothing recognising this issue,” he added.
Financial education
Bell also believed the levels of financial education in the UK needed to be better to help the population understand they must save more into their pension.
He said: “It's scary that the levels of financial education our younger people have are just nowhere near what they need to be.
“Martin Lewis does a great job, he raises the profile on stuff like this, because he's actually cottoned on that people don't understand what should be relatively basic things. And when you're planning something like a pension, and with the compound elements involved, it can become quite complicated.
“So levels of advice need to be at a level that people can appreciate and understand what they're doing and why they're doing it.”
Bell believed the pensions dashboard will perk people’s interest to ask questions about their pensions and perhaps get them to seek out advice once they see how much they have actually saved.
He also said it needed to be made easier from a regulation perspective to allow pension providers to provide educational pieces to their members.
“The worry and the effort that goes into a communication from a pension scheme to its members, to comply with regulations, not to fall foul of anything, not to say stuff it shouldn't say, makes it pretty unintelligible,” he added.
Bell also pointed out there was nothing in the manifestos to address financial education or improve it.
He said: “None of this is rocket science. But because these things are not vote winners, cross party agreement has to happen. In order to stop the ability for tinkering around the edges to upset people's well laid plans for the future.
“The overall message is we're approaching a bit of a tipping point. And unless something happens now, the success of auto enrolment, however you define it, is going to be undermined.”
alina.khan@ft.com
