Dealing with the auto-enrolment challenge
This year saw automatic pension contributions rise to five per cent, and an increase to eight per cent is scheduled for April 2019.
While auto-enrolment has certainly been a positive step in encouraging people to save some money towards their pension, there are notable challenges that the initiative poses.
The main concern is that there are only two options: in or out.
This comes at a time when 16.8m Brits have less than £100 in savings, according to the Money Advice Service. And the next increase will further dent take-home pay at a time when many feel that they’re already struggling.
As the contribution levels rise, so does the risk that people will choose to opt out, deciding to fend for themselves instead.
This may be a sensible choice for some, but others may well find themselves horribly unprepared when the time comes to rely on their later life savings.
With Office for National Statistics data revealing that 12m people are not saving enough for retirement, this trend needs to be halted.
Providers need to think about how they’re going to keep these customers engaged, or they risk losing revenue.
Key to this is making sure that customers are fully aware of the benefits of regular pension contributions. This means getting people engaged in their finances, making them aware of how they’re spending, and how they’re saving. They can also help set sufficient savings goals.
Playing a more active role in the process should also be considered, giving customers access to the necessary tools to help them save for their future.
By using the Open Banking reforms, it’s possible to help to develop and implement “smart nudges” which will automatically identify where savings can be made.
This could be as simple as finding a better mortgage deal, savings rate, or switching utilities. Providers could then encourage consumers to put this additional money towards their pension.
In addition, enabling customers to make ad-hoc payments would make a huge difference. Being able to contribute a little bit more when there’s a little spare cash will help to increase engagement, while also adding to business revenue.
Financial management platforms have found that, when users see the power of pensions alongside their other finances, they are more inclined to be actively engaged in their saving and spending habits, leading them to contributing more to their financial future.
The world we live in now is all about visibility, and it’s important to do more to educate and engage. People shouldn’t view their pension balance as an abstract pot of money disconnected from the rest of their financial universe – it should be there front and centre when they consider their complete financial health.
Auto-enrolment should be seen not as a hurdle, but an opportunity. By delivering additional value, providers will strengthen customer loyalty, boost assets under management, and put themselves on a stable financial platform going forward.