Birthday wishes for a happier DC picture

This was the first time I had ever been treated to a chorus of “Happy Birthday” as I took to the podium.

Conference host Damian Stancombe led the audience in singing along - now I had to live up to that rousing start.

You may think that talking about pensions was not the way to do it - but, tracking our photography theme, we had begun to move from the ‘black and white’ to ‘full colour and 3D’, as the event built from a foundation of political context, global parallels to a more, rounded portrait of defined contribution pensions in the UK. After all, it was a DC conference.

The most striking feature of the picture is that more people are now saving for defined contribution (around 14 million), than for defined benefit (around 11 million) pensions. A worry we share with The Pensions Regulator, is that there are two types of savers - those who are part of well-managed schemes and those who aren’t.

The colours framing the pensions landscape shaded a little darker when I pointed to the fact that half of all trust-based DC members in the UK were found to be in schemes not meeting statutory requirements. Indeed, I’ve seen schemes holding thousands of members that are administered essentially by one person - with spreadsheets. It’s our business to help companies with their employees’ retirement planning, but no-one knows how many more schemes are like this.

At the other end of the scale, the trend towards consolidating master trusts is probably the right answer - as members would benefit from economies of scale. However, the central obstacle remains ‘saving enough’. The power of inertia is a critical factor; if people, whether by automatic escalation or desire, were able to save just one per cent more each year between 30 and 37, their eventual pot size could be 64 per cent higher than if they kept contributions at the same rate up to retirement.

Continuing around the circle, we also know that around £43 million has been stolen from DC pension pots by fraudsters exploiting freedom and choice changes. Equally as disconcerting is that 57 per cent of people with guaranteed annuity rates are giving these up in favour of cash. Is this freedom leading to rash choices?

This begs the question: are employers and trustees doing enough to ensure their people are able to make the right choice? A gateway service to direct them to the right solution could be an answer. While consolidation may deliver improved benefits and auto-escalation boost saving levels, the concern remains: how many members are being left out in the cold at retirement?

So, not the typical speech to make on your special day but if I had one birthday wish to make in my professional life, it would be a system that ensures every saver in shot is smiling.