Gone are the days when you could be guaranteed a job for life – or a single generous pension.
Today, most workers can expect to have multiple jobs before they retire, but that could also mean dozens of small pension pots languishing in different schemes and doomed to be forgotten.
Cue the Pensions Dashboard, a new idea from the Government and financial industry that will allow workers to view all their workplace and private pensions alongside their current state pension entitlement via a single website and app.
An added benefit is that you would no longer have to know the details of each pension to track them down individually, instead entering some basic details into the dashboard, which will scour the records of the Government and registered companies on your behalf.
The tool is still in the planning stages and will not be ready to launch until 2019. But campaigners have already warned that it will not work unless it has the full co-operation of the pensions sector and the Government.
Those worries were put to the Association of British Insurers (ABI) at a special consumer forum held in London this week.
The ABI, which is designing the dashboard with the backing of the Treasury, admitted that it would be a challenge to persuade all pension schemes to get on board.
Dr Alistair Horn, delivery director of the Pensions Dashboard project, said: “We are working with the Government to make sure that all necessary incentives – and pressures – are brought to bear on schemes so that they all sign up to the dashboard.”
There are currently no plans to force companies to hand over data, but the ABI believes this might have to change. There are fears that the tool will flop if it only shows users a small number of the pensions pots they actually have, with Dr Horn admitting that people “won’t come back” to the service if it is not comprehensive enough.
Darren Philp, head of policy at workplace pension firm the People’s Pension who also chaired of the event, said other countries where a similar dashboard is already in place, such as the Netherlands, went a “surprisingly long way” with voluntary participation from pension companies.
“But eventually, that strategy hits the buffers,” he added.
The failure of the dashboard would be an unwelcome echo of the Money Advice Service (MAS), another government initiative that was scrapped in last year’s Budget after failing to close Britain’s advice gap, despite receiving more than £100 million in funding from a levy imposed on the financial sector. Of the 27 million people who visited the MAS website last year just 28 per cent stayed for more than 15 seconds.
A new single financial guidance body will now launch in 2018, merging MAS with the equally beleaguered Pensions Advisory Service and Pension Wise. These services have only been used by 10 and seven per cent of people approaching retirement respectively, according to recent data published by regulator the Financial Conduct Authority.
There is still uncertainty about whether the dashboard will link up to the new guidance body, but attendees at the forum on Monday agreed that people will need all the help they can get if the UK is to avert a retirement savings disaster.
It has been estimated that a million people will opt out of workplace pension schemes in 2019, as the amount that someone on full-time average earnings will have to contribute goes up from a minimum of £18 to £92 a month as the auto-enrolment threshold increases.
The prediction was made by financial firm Hargreaves Lansdown, based on the Government’s own projections, accompanied by warnings that a worker opting out between the ages of 22 and 25 could reduce their eventual pension pot by £20,000.
It corroborates a recent report from pension firm Scottish Widows, which found that half of all under 30s will quit their workplace schemes when contribution rates start to rise next year, with more than half saying they have too many competing financial commitments to keep saving.
Nathan Long, senior pension analyst at Hargreaves Lansdown, said: “Confusion with pension planning is worryingly on the rise. Investing in property is seen as the best way of making the most of your money, despite it being one of the least tax-efficient ways to invest.
“More people are now citing a lack of understanding as the reason they are not in their workplace pension, even though auto-enrolment means most will not make any decisions whatsoever to join.”
But some experts wonder if auto-enrolment has been part of the problem rather than the solution.
Andy James, head of retirement planning at advice firm Tilney, said: “Employers only have to pay one per cent for every one per cent an employee contributes.
“While it is great that this scheme has forced employers to contribute to pensions who did not do so in the past, it also enabled some previously generous employers to reduce their contributions in line with basic auto-enrolment requirements for new joiners.
“This, and the overall averaging effect of the new lower contributions, has resulted in the average percentage being saved going down.”
Mr James said this creates “ominous implications” for the average 30-year old, who needs to be saving between 12 and 15 per cent of their earnings if they want to have a comfortable retirement.
“For many, the combination of graduate debt, rising inflation, rental costs and the difficulty of getting a foot on the housing ladder, means this is not a realistic figure,” he said.
“The proposed increases in auto-enrolment contributions will be helpful but will not get anywhere near the required levels of contribution.
“However, saving just a few extra per cent could make a huge difference.”
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