To fuel the pensions revolution, we need to put passion into pensions – and that means opening them up to social investing
The humble nudge has worked. With around six million people now automatically enrolled into their first pension, we have reason to be hopeful that the UK is now saving for its future. However, it’s much too early to declare mission accomplished.
We’re still waiting for the large number of smaller companies to enrol their employees into schemes, and they will need to navigate a complicated landscape. Many employees are still only saving one per cent of their salary into their pensions, and this needs to increase to over 10 per cent to provide for a more sustainable source of retirement income.
Many first-timers to pensions may find an alien world, full of a labyrinth of complexity – it’s no wonder people feel disconnected from their money. There is a real risk that employees who don’t understand pensions will opt-out, putting the UK right back where it started.
What we need is people to engage with their pensions and dare I say it, a bit of passion. Perhaps not a bad thing with Valentines Day coming up. Clearly the government are thinking along the same lines. Minister for pensions, Baroness Altmann recently renewed calls for the industry to make pensions more attractive and engaging for customers, in order to drive higher contributions and retirement incomes.
But to achieve that we need a wave of innovation from pensions providers that not only meets people’s desires but also offers them a real choice. We need a pensions revolution that recognises that pensions are all about people.
So, how can this work in practice? We know that people are keen to use their money to ‘do good’ – recent Barclays research suggests over half would like to invest socially, yet only nine per cent are doing so.
Millennials in particular are motivated by more than just money, and research shows that they are especially keen to use their money and skills to make a real difference to people’s lives. But where are the options to make a social as well as a financial return when it comes to pensions?
We need defined contribution pensions that enable an individual to invest in social causes they believe in – promoting more affordable housing, greater community energy or new social technology – as well as make a competitive return for their retirement.
And by looking at other countries, we can see how this would work. Proven models already exist in France where over a million people are already put over €5bn in long-term social savings.
Social pension funds can not only help government promote its policy of greater choice, they can also help employers retain and recruit talent. But to really change the pensions landscape we need to move now.
While we face big challenges when it comes to turning the UK into a nation of pension savers, we can help overcome these if we really engage people and make them passionate about their pensions.