Automatic enrollment in the U.K. has been a success so far, but things are about to get more difficult, warned Richard Harrington, the parliamentary undersecretary of state for pensions.
Speaking Wednesday at the Pensions and Lifetime Savings Association's annual conference in Liverpool, England, Mr. Harrington said he is “very wedded” to the idea of auto enrollment. He said the government is “cock-a-hoop” with its success. “But I'm concerned that the hard stuff is coming.” He warned that the industry is about to deal with “exponential growth in the amount of contributions,” as the participant contribution is set to rise to 3% in 2018 from 1% currently, and then to 5% in 2019.
“I think we have got a lot of marketing to do to explain to … the people whose money it is” and to persuade them it is the right thing to do.
He said he is less worried about the companies themselves that are tasked with enrolling participants into retirement plans, since it is law and they will comply.
Mr. Harrington addressed a number of other topics in his presentation, including the need to “de-jargonize” the retirement market and instill the idea that these assets are the participant's long-term savings. “People don't think of it as being the same as a house or car” or other tangible assets. “It is our job to show people auto enrollment is your own account, and in it is their own money.”
He said a bill was presented to Parliament on Wednesday, and it will be published publicly ThursdayOct. 20, regarding the regulation of multiple-employer defined contribution plans known as master trusts. He said there cannot be a “situation where parts of pensions are more regulated than others.”
Mr. Harrington, who was appointed in July and revealed that he had asked for the position, also said he has been looking closely at the defined benefit industry and has been speaking with those running pension funds to ask whether they think government should be doing anything. He is also looking into why British pension funds are not investing in big projects in the way that Canadian pension funds do, and is interested in the views of the industry.
“One reason could be that the industry is too fragmented — and several fund managers said this to me.” They “cannot get in on big deals as (the industry is) too fragmented. Maybe the government needs to nudge it?” Mr. Harrington said.