What then are the necessary next steps? All of us have a part to play:
UK insurers have to ensure the successful deliveryof auto-enrolment, continuing to work closely with employers andemployees to maximise take-up and minimise drop-outs. We havestarted well
with drop- out rates so far at 10% or less - but the biggestchallenge comes with the smaller companies that start to be auto-enrolled over the next two years. Just as importantly we have tocontinue the work we have started to explain charges & fees in a waythat customers understand with full transparency of the costs. Chargeshave now been falling for over a decade with the average new defaultworkplace scheme having an Annual Management Charge of just 0.52%but it is vital for the credibility of pension saving that scheme chargesare as low as possible, especially when growth is subdued. The pensionsindustry also has to continue to be vigilant about fund performance andhigh pay in the companies it invests in. But it is nonsense to suggest, asMichael Johnson does, that the pensions industry is relaxed about
excessive pay in the companies it invests in; what was last year’s‘Shareholder Spring’ if not a protest about those very issues? As for
returns, well of course they have been depressed during the worstfinancial crisis since the 1930s. But as funds invested for the long term tomaximise return over a cycle and preserve gains as retirementapproaches, pension funds remain a critical way for people to saveprofitably for retirement, with products provided by an industry that iscontinuing to reform to meet the needs of the modern world.
Employers are also critical. The old DB schemes with typicalcontribution levels of up to 20% may have become unaffordable as stockmarket returns have fallen, the basis of pension fund taxation changedand pensioner longevity increased, but employers still have a clearethical responsibility to their workforce to contribute the maximum theycan afford to pension schemes, not the auto-enrolment minimum. Theyalso have a duty
which many, encouragingly, have demonstrated so far
to explain the benefits of pension saving to workers to encourage hightake-up rates. With FSA reforms to the Independent Financial Advisorsystem making personal financial advice unaffordable for many,employers also have a critical role in facilitating financial advice beinggiven to their workforce so they are equipped to take informed decisionsabout their financial planning.