Restoring trust in pensions

By Charles Cotton, CIPD Performance and Reward Adviser, @CharlesMCotton

The joint Pensions Management Institute/CIPD pension survey asked HR and pension professionals what they thought should be the main focus in restoring public trust in pensions. Interestingly, none of the respondents argued with the assumption that trust in pensions needed restoring. When the CIPD has asked employees about pensions they show a high level (potentially misplaced) of trust in pensions as a savings vehicle for retirement. Perhaps what they mistrust is not so much pensions themselves but those who provide and advise.

According to the sample, the most popular way of restoring trust in workplace pensions is to strip out the complexity as much as possible (though some wanted all complexity removed); the argument being that we don’t trust what we don’t understand. However, I would suggest that aeroplanes are complex but that doesn’t stop most people from flying in them. You can make a similar argument for pensions; most of us don’t necessarily need to know how they work, but what they’re going to deliver. Of course, that’s where the analogy starts to weaken; at least with an aeroplane you have a good idea of your destination. With DC pensions that’s not necessarily the case. Will the contributions and fund performance be enough to see you where you want to get to, especially if where you want to get to changes either because you change your mind or the government alters the rules? I guess what I’m saying is that pensions are pretty complex anyway, so what the industry and the government need to do is strip out any needless complexity, which could account for why more respondents wanted more government intervention around pensions rather than less.

Other areas that respondents believe we should be focusing on were: value for money; greater transparency around charges; allowing greater access and flexibility to pensions; and offering employers greater scope to provide information and non-regulated advice. Many of these options are already being pursued by the industry and government, for example pension charges, where two in five respondents thought that the government could have introduced a lower cap on fees than 0.75%. However, it should be noted that not all HR and pension professionals support these ideas. For instance, 18% think that there should be no cap on pension charges at all, while previous research suggests that many employers are nervous that providing non-regulated advice may become the thin end of the wedge and that regulated advice would eventually follow.

Some of our respondents flagged up the importance of rewarding and recognising those financial service employees who exhibit the values and behaviours which support an organisational culture that is customer-centric. This requires the industry, the government and the regulators ensuring that employers are recruiting, managing, developing and rewarding employees with the right skills, behaviours and attitudes as well as ensuring that the company culture fosters great customer service.

Most respondents would like to see individuals knowing more about personal finance before they start work. They would like to see more attention given to this topic by schools so that when employees start work they already know the basics.  The next second most popular approach to ramping up the financial capability of the UK workforce was to see the financial services industry taking on greater responsibility for educating scheme members and the public more generally. Again we need to see the government and the pensions industry working together, realising that a workforce that is financially capable and resilient can only have positive outcomes for business and society.

There is no quick or easy fix to rebuilding trust in pensions. We need to increase understanding and awareness, but we should also recognise that we always need a safety net for the unlucky.

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