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Changes are coming

02 November 2017

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Changes to auto-enrolment are coming, how can trustees ensure their members are prepared?

With 8.5million more people now in a workplace pension scheme since its launch in 2012, so far automatic enrolment has been hailed as a resounding success. But April 2018 will see the next phase of its roll out and both employers and employees will be required to increase their minimum contributions – something trustees should prepare members for ahead of time.

The overall minimum contribution will increase from 2% to 5%. Within that, employee contributions are increasing threefold, from 1% to 3%, while employer contributions will go up from 1% to 2%. Further increases are scheduled for April 2019, with an 8% contribution split into 5% from employees and 3% from employers.

While some schemes are already contributing more than the new 5% minimum, many are not, meaning this next phase will impact their members directly. For trustees, the challenge will be not only to communicate the new figures, but also to give members the wider context for the increase, as well as being able to explain the differing contributions for employers and employees, before they appear on payslips in April.

The most straightforward reason for the increase is that at its current level, the minimum contribution is not sufficient to give members adequate savings for retirement. But at the 2017 Pensions and Lifetime Savings Association conference in October, Chris Curry, director of the Pensions Policy Institute, told delegates that pinpointing a single answer to how auto-enrolment and the debate around contributions fits into the wider financial landscape is difficult.

He said: "Nearly every response to our consultation suggested there might need to be an increase in minimum contributions, there was no consensus at all about what the right level should be, how it should be implemented, when it should be implemented, or who should bear the burden of doing that."

In addition to identifying the key messages, considering how to communicate that message to members is equally important. Engagement is the key word and trustees must ensure the information they share is clear and concise, avoiding jargon and focusing on the information members actually want to receive.

Ruston Smith, chair of Tesco Pension Trustees, told delegates at the PLSA conference: "The objective is to see how we can improve engagement to create more personal ownership so people can make more informed choices."

Smith highlighted the fact that members often receive financial information from a variety of sources, meaning pensions information is difficult to decipher, even for the most well-informed. He mooted the idea of a cohesive statement style across the industry in the future to make it easier for scheme members to understand the information they receive.

"There's been some phenomenal work done, but bring it back to the person who has all those statements coming to them; and we're all trying to keep it simple using different words. We have to think more holistically about engagement."

Trustees should also consider the limited time members have to digest and understand new information. People are distracted with multiple priorities, meaning communication about auto-enrolment needs to be short and relevant.

Whatever approach trustees choose, getting the right message across to scheme members in the right way is essential for a smooth transition in April when the increase takes effect.

Jamie Jenkins, head of pensions strategy at Standard Life, told PLSA delegates: "It's an astonishing feat so far, but the job is only half done and we are counting on employers over the next couple of years to get contributions not just in, but up."

Written by Lindsay Sharman

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