12 Jun Employees still puzzled by pensions, says former minister
Better education from employers needed, and further intervention from government likely
Many workers are still uneducated about pensions, former minister of state for pensions Steve Webb has warned.
Speaking at the Secondsight Annual HR Masterclass, Webb said that while people on high salaries with large pensions could often afford bespoke advice and those who earned little with smaller pensions often had only limited options available, those in the middle desperately need further help.
“I think there will be a growing number of people in the middle who will benefit from workplace advice, guidance, help, various types of things,” he said. “And I think that will come to be something that is more valued as an employee benefit because it seems to be people everyday in the papers are reading about this stuff.”
Webb also highlighted that many presently saving might be shocked to discover how little they might receive in retirement. Although the current minimum combined contribution for auto-enrolment is 2 per cent of an employee’s salary, this will rise to 8 per cent in October 2018. Given that, for most, retirement is approximately half as long as working life, Webb calculated that this equates to an income of roughly 16 per cent of a person’s salary and, even when combined with the state pension, many would be dissatisfied.
“Pensions are about your living standard when you were working not falling off a cliff when you retire. That’s what pensions are for,” he said.
Webb speculated that, because of this, the government is likely to intervene to raise the minimum contribution amount further than 8 per cent. He also suggested an automatic escalation system, under which employees would agree to contribute a certain amount of their salary to their retirement fund whenever they received a pay rise. Automatic escalation is already common in the US, where it forms part of the 401(k) system.
According to Webb, auto-enrolment has so far been a success. More than four million workers have now been enrolled under the system.
“If we had left it to employees to opt in, they wouldn’t quite have got round it,” he said. “Or they would have done what I call the typical British approach to pensions, which is panic at 50… that’s a bit late to start.”
Attendees at the event also heard from Michelle Bradshaw, compensation and benefits director, UK, Ireland and Israel at Oracle. She explained how the technology company was already providing the type of financial education Webb advocated. The key, she said, was making sure its offering felt applicable to employees.
“The pension freedom changes are great but it means people are going to need to be much more aware of what they are doing,” she said.