What will auto-enrolment pensions mean to you?

Thursday, 12 January 2012

Pensions reform is imminent. From October 2012 the government will be introducing auto-enrolment, phased in over the next few years.

This will mean that those individuals/employees who meet the qualifying rules and are without an existing employer/occupational pension policy will be automatically enrolled into one.

Given the demographic reality (by 2025 there will be as many people aged 70+ as there were people aged 65+ in 2010), as well as the fiscal reality, Friends Life explored what might happen if the pensions crisis isn’t solved by auto-enrolment through research carried out by Future Foundation.

Given that 76% of respondents agreed that “the government should do all it can to make sure that its citizens are financially secure in their retirement”, it is vital that auto-enrolment is not presented as a magic solution that removes the need for any additional financial planning.

But what if saving is not adequate? How might impoverished, retired people cope financially in 2020?

The researchers imagined a scenario where auto-enrolment does not solve the pension crisis and more and more retired people are having to find new ways of ensuring a decent standard of living.  Respondents were asked what they would do if they ran into severe financial difficulty in their retirement.

This unearthed a new socio-economic group, a rising generation of ‘Wearies’ – Working, Entrepreneurial and Active Retirees – who could be forced to continue working into their seventies and beyond due to hardships caused by the looming pensions crisis.

It is predicted that many of tomorrow’s enterprising pensioners will, choose to become consultants, online traders or run odd-job businesses to make ends meet.

Those who are currently working (tomorrow’s retirees) are much more open to both continuing in part-time work and towards more innovative solutions than current retirees. 75% of those who are currently working would be prepared to do part-time work after retirement.

34% would be prepared to “run a small one-person business from home” and 59% would consider selling “unneeded or little-used possessions online”.

So those who are not yet retired are more open to new possibilities about what they will be able to do to make more money than those who are already retired.

This could be a function of growing expectations of a fulfilling retirement; partly a function of increasing healthy life expectancy and partly acceptance that such solutions might become necessary is the crisis is not solved the report concludes.

It also identified a growing concern with intergenerational justice – a debate about patterns of wealth distribution between the generations – in the same way that there is currently a growing concern with distributive justice and inequality.

By 2020 intergenerational justice looks set to become a more prominent political and social debate than it is today. For example, 57% of the baby boomers generation agree that the under-30s “will have to work hard to fund growing numbers of pensioners” against 46% of under-30s. 36% of under-30s agree that “younger generations will pay for the financial mistakes they [boomers] have made”.

The report revealed that most baby boomers (67%) expect to be more active in their retirement than the generations before them. Their expectations were found to be high. Meanwhile, only 11% of boomers agree that “I think it is the responsibility of parents to leave an inheritance to their children” – despite their recognition that they have benefitted from the house price boom.

Finally it concluded that:

• The baby boomers – tomorrow’s retirees – do not intend to ruin their children’s financial futures. But they have high expectations and are politically engaged. The electoral reality is that the older generations are more likely to vote. So there may be intergenerational resentment in future.

• Certainly distributive justice – a concern with income inequality – has re-emerged as a topic of political debate. By 2020 intergenerational justice could be a much more prominent political and social debate than it is today with recognition of the need for compromise between the need for secure retirements and the interests of tomorrow’s workforce. 

"With this focus on an ageing working population, there is a growing concern about intergenerational justice and a looming debate about the patterns of wealth distribution between the generations.", says Andy Briggs, Chief Executive of Friends Life.

"We expect that by 2020 this will be more prominent than it is today with 57% of the baby boomer generation agreeing that the under-30s “will have to work
hard to fund growing numbers of pensioners” against 46% of under-30s."

The full report can be read here.