Is auto enrolment pension advice fit for purpose?


Article by Phil

An insightful report on auto enrolment pension advice has just been published by the Department of Work and Pensions (DWP) and reported in the FT Adviser (28/10/22). The report looked at the DWP’s investigation into company auto enrolment pension schemes.

The DWP had spoken to a representative sample of large and small firms to determine their attitudes to their Pension providers and what they expected them to do. The results were revealing.

Firstly, of the 60 firms surveyed only a “few” had switched providers since they set up their schemes. The main reason for the few who switched was extreme dissatisfaction with the service and investment performance.

But almost all the firms had not changed auto enrolment pension advice providers. The main reason given for this was time and effort.

Dressed up in typical corporate jargon most firms said that their main concern was the resource burden of running the scheme. In other words, the less time they had to spend on the pension scheme administration the better. Most firms trotted out the usual expected lines about customer value and service being the most important. But that’s not what it boiled down to. It’s not even price sensitive. 25% of employers said they had no idea how much the auto enrolment schemes cost.

It also appeared that concerns about ESG investments were very low down the priority list.

The main reason cited was concern about investment underperformance in the ESG sector. Rather than ESG concerns themselves. So, despite the FCA taking an interest in ESG labelling in the light of the recent ASA ruling, it seems that most employers aren’t interested.

The survey was conducted in part to find out how to deal with the issue of small pension pots. Based on the responses firms would be unlikely to support a switching scheme if it involved them having to devote extra time and resources to the project.

Whilst auto enrolment pension advice has been an undoubted success in increasing employees’ engagement in pension savings. The value and performance of the actual pensions themselves may well come under scrutiny in the future as a result of a lack of engagement by employers.

We shall see.

As we already know the number of small pension pots is rising. Research from Canada Life found that 1 in 10 adults in the UK had successfully tried to search for lost pension pots. The average value of pots found was just over £6,000, but in 8% of cases the value of the pots found were over £20.000.

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