Reflections on the SPP Roundtable event, Value for Money in DC

My personal reflection on the SPP’s excellent Roundtable event on Value for Money in Workplace DC Schemes was that financial education remains a key issue.

The ongoing challenge remains for the industry to agree what the minimum threshold of contribution rates should actually be, to allow people to have a reasonable level of income for retirement. In the meantime, research shows for many people, the primary source of trusted financial knowledge is their employer. Where employers pay statutory minimums, the assumption is that this will lead to reasonable outcomes, but the majority of the industry is in agreement that these minimums are not sufficient alone. There is a real need for public education on what people need to be investing for the future, not easy as both employers and employees struggle with the post Covid-19 economy and the inevitable financial pressures that will follow.

The move to DC, followed by the advent of flexible drawdown, has increased the onus on members to make informed decisions. Given the lack of financial education, the industry focuses on safeguarding, supporting with the risk of poor decisions or scams. However, these risk warnings can act as barriers to informed decision-making, with some members choosing not to make changes that might be to their benefit. This also reinforces the need for good governance in the running of schemes, extending best practice to legacy and smaller arrangements.

Ultimately financial education is essential and there is a role to play for the industry to agree some basic principles. We need to work more broadly, to encourage a growth in public understanding before too many people find themselves retiring without the funds they need to fully enjoy this part of their lives.

Of course, many would say it has always been so.  Why is 2020 any different?  Perhaps the advent of the dashboards will give us a common platform and language that will allow a step change.

Thanks to Martin Willis, Barnett Waddingham, and Louise Sivyer, tPR, for their first class facilitation. Please see SPP’s paper on simplifying automatic enrolment here

Fred Emden