DC pensions have certainly caught the public’s attention in 2015. Recently released figures show over 200,000 people accessed the new pension freedoms in the three months since the rules were relaxed in April 2015. While it is good to see more people taking an interest in their retirement, and by all accounts not just buying supercars with the proceeds, there is still a huge lack of understanding by the general public in regard of DC.
There have been a couple of good examples of this recently. The first is shown by the lack of awareness of what is arguably the key advantage of saving into a pension, tax relief. A recent YouGov survey for The People’s Pension revealed that almost three quarters of working age pension contributors either had never heard of or did not understand the tax relief that is granted on pension contributions.
Whilst the DC industry is currently spending lots of time and money talking about value for money and ensuring that member borne charges are reasonable, a further survey conducted for The People’s Pension, showed that over half of working age pension holders did not even know whether their current pension provider was charging them to manage their pension savings or not.
With a huge rise in DC contributors due to auto-enrolment, many of whom have never saved for a pension before; this lack of understanding is to be expected. Any assumption that the level of knowledge will increase as NEST and master trusts mature and grow in size seems both unfounded and dangerous.
Against a backdrop of huge publicity around DC pension freedoms and the set up of Pension Wise to provide free and impartial advice, the continuing lack of understanding around basic elements of DC provision is concerning. Research done by Towers Watson showed that only 1-in-10 of employers believe their employees know how much them should be saving for retirement. The question for the government, sponsoring employers and trustee boards is what are the most effective and efficient solutions to this continuing lack of understanding and engagement?