Decisions. Everything – and I mean everything – comes down to this deceptively innocuous-sounding word. Take scheme management for example. It comprises many things; investment, administration, communications, to name a few. All of which require decisions large and small, from making choices within each of these subjects, to determining which subjects are at the top of the agenda at any one time.
Making these decisions has become increasingly complex in recent years, as scheme managers and trustees grapple with a mounting pile of regulation, a volatile investment market and an evolving description of what ‘retirement’ even means. With such complexity, it is no wonder that the onus of decision-making is being pushed onto the individual saver.
Sure, this move has the benefits of providing ‘freedom and choice’ to the saver, while reducing the regulatory and cost burden from the employer. But let’s be clear, relieving the pressure of making some difficult decisions is also a definite plus.
But if the experts struggle to always get it right when making pensions decisions, what hope do the individual members – whose day job does not involve researching these decisions – have?
Recent research by Xafinity found that just 25 per cent of pension scheme members said ‘yes’ when asked if they understand what pension they will get from their scheme. Thirty-four per cent said ‘no’ and 41 per cent stated they had ‘some’ understanding.
Wealth at Work’s research complements these findings. Almost half of the employers it surveyed believed their employees are not aware of the various retirement income options available to them at-retirement, leaving them vulnerable to making poor decisions.
I’m not surprised to hear these reports. Just because individual savers should have a strong personal interest in ensuring their retirement savings meet their aims, that doesn’t mean they have more time, research, financial knowledge, or simply luck, to be able get it ‘right’, compared to those previously responsible for making decisions for them.
Of course, the industry has to do all it can to help members make choices. But, like an incorrectly-played game of pass the parcel, just as those managing pensions are keen to push the responsibility of adequate retirement saving onto the member, so individuals themselves want to shove the decision-making back onto the ‘experts’ (rather disproving MP Michael Gove’s 2016 claim that “people in this country have had enough of experts”).
As Radio 4’s Moneybox presenter Paul Lewis said recently at the PLSA Annual Chair’s Dinner, engagement isn’t wanted by the customer; instead trust in the pensions industry to make the right choices for them is what is desired by savers.
I believe that the industry does want to act upon, and be worthy of, that trust.
But to do this, a fundamental decision has to be made by those managing pension schemes as to what the scheme’s intentions are, so that it is clear exactly what is being trusted upon to deliver.
So is the pension scheme being provided to staff simply a legal requirement, thanks to auto-enrolment, and the DB scheme a legacy issue that won’t go away quickly enough? Is it a foundation to facilitate an individual’s long term-savings, of which they make their own choice as to how those savings are spent? Or is the scheme a way to reduce pensioner poverty and its associated problems, with active measures beyond basic saving included to help achieve this?
Practicalities and unforeseen events may of course impact upon your decision as to why the scheme exists. Plus the government may have other ideas regarding the worthiness – or not, as it seems to think – of saving into a pension, which may derail the scheme’s aims.
But knowing and keeping in mind the fundamental point of the pension scheme can only help when making day-to-day decisions for the running of the scheme. And having this consistency underpin every choice that’s made may provide the trust that is so badly desired by savers.
So what does your scheme stand for? You decide.