The pensions market in the UK is crying out for fresh ideas and innovation.
While the last 20 years has seen a seismic shift away from final salary schemes to defined contribution (DC) plans, there’s been very little change to the core products.
The Government’s interventions in the pensions market in recent years – such as introducing auto enrolment, reducing annual allowances and loosening the rules on accessing funds at retirement – has done little to change the core DC scheme offering. If anything, these changes have reinforced the status quo – with employers now legally obliged to enroll their employees into a pension scheme, providers are under little pressure to innovate or disrupt the market: they have a more or less captive audience for their products. They still seek to compete on cost, of course – our research shows that the annual management charge is still a concern for employers when choosing a scheme, although this is considered in the context of the overall proposition. But providers have no need to design ground-breaking products or offer outstanding levels of service – they know that there’s ample business out there to share around.
It’s a sad indictment of this laissez-faire attitude among private pension providers that it’s taken NEST to try and shake up the market. NEST’s trial of ‘sidecar savings’ is still ongoing, but our research shows that employers are very interested in this sort of ‘two-pronged’ approach to workplace saving – where employees build up a short-term ‘emergency’ savings fund before their contributions are diverted into their pension pot. We believe it’ll take radical ideas such as this to bring the real change that the pensions market in this country needs and to really engage people with saving for their retirement.
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