IPE Conference: Industry debate favours compulsory DC contribution
Attendees at a pensions panel discussion were split on whether it was preferable for a successful defined contribution (DC) system to involve full compulsion or whether it should be an auto-enrolment system with the possibility of opting out – but narrowly favoured full compulsion.
In a poll conducted among audience members at a discussion at the 2016 IPE Conference & Awards in Berlin, 39.2% said full compulsion was the preferable method, while 37.8% indicated that auto-enrolment with opt-out would be better.
Just 4% of people at the panel talk, entitled ‘Defined Contribution: Building a future-proof pension system’, chose voluntary enrolment with no compulsion, and 18.9% advocated collective enrolment through labour agreements as the preferable system.
Speaking on the panel, Heribert Karch, chief executive of Germany’s MetallRente pension scheme, described the path second-pillar pensions provision had taken in Germany since the Riester reform of 2001, to the current point where he said the system was “hopefully” at the starting point of the social partnership model, where social partners are involved.
He said that, ultimately, it was the social partners who had to decide what kind of system they wanted.
“It is the social partners who have to decide what they want, and it is for me to do the job,” he said.
“We need automatic enrolment, and the approach should be a combination [of voluntary and compulsory contributions], but total freedom will not be a solution.”
Trish Curry, meanwhile, regional head of AustralianSuper in the UK, described the Australian superannuation system, which is compulsory.
“A compulsory system gets everyone in the game, and that’s what we’ve seen,” she said.
“The key is to be in the system, and you see your pot growing, and that creates engagement, and that’s what we want.”
Theo Kocken, chief executive and founder of consultancy Cardano in the Netherlands, showed a film of a behavioural experiment on monkeys.
This demonstrated how a scenario where the animals were given less than promised caused disproportionate aversion to that particular provider.
The monkeys’ observed behaviour explained why the many changes in the Dutch pension system had given people the sense that they had lost out, Kocken said, arguing that, psychologically, people were more emotional about their losses – and therefore remembered them more keenly – than they were about their gains.
“Everything in life is psychological, and we have to avoid in the pension system that we build in too much of this anger and these negative feelings,” he said.
On the question posed by the poll about compulsion in a DC system, Kocken said a perfect solution would be the auto-enrolment system of the UK combined with the mandatory system of the Netherlands.
“As long as it’s not too complex,” he said. “I’m fed up with all these complex systems that, in the end, lead to all this political debate that we have in the Netherlands.”