How far should auto-enrolment go?
Innovation is undoubtedly a great thing, especially when new ideas or technologies can encourage more saving among younger generations whose long term futures will not be aided by guaranteed pension funds.
In Mexico, for example, shoppers can round up their weekly spend to the nearest peso and deposit the balance into their pension fund, thus instilling the habit of saving in an easy way. UK ‘challenger’ bank Starling has introduced a similar concept for savings accounts.
In the pensions world, some are contemplating whether auto-enrolment into pension funds could be expanded to help savers in other areas of their financial lives. NEST in the UK is experimenting with an emergency savings vehicle topped up in tandem with members’ pension accounts.
Discussing the potential of auto-enrolment at last month’s IPE conference in Dublin, Michael O’Higgins – a former chair of the UK’s Pensions Regulator – suggested allowing people to use these savings to pay off student loans faster, as well as save for a pension. Fellow panellist Amlan Roy, chief retirement strategist at State Street Global Advisors, pointed out that the US Treasury department and the Department of Labor were considering just such a concept.
But it’s possible to take a good idea too far. Tim Jones – who oversaw the establishment of NEST from 2007 to 2015 – backed NEST’s experiment but disagreed strongly with the idea of mixing pension saving and loan repayments, arguing: “It’s incredibly important to have simplicity and clarity about what the money is for. Pension money is for your later life. No ‘ifs’ or ‘buts’.”
Those at the forefront of industry change can be forgiven for getting excited by the potential uses of new concepts, but they must never lose sight of the individual customer, saver or pensioner at the end of the process.