From 2012, the UK government is bringing in auto-enrolment, a semi-compulsory approach to retirement saving, which will result in the automatic enrolment of all qualifying employees into a qualifying pension scheme.
The aim of the auto-enrolment strategy is to move the UK to a position where the vast majority of UK citizens are saving to some extent for their own future pension provision. In theory, this should lead to a vast new market of consumers who are more aware of financial products and the benefits they can bring.
However, the issues involved in bringing a completely new group to the market are not straightforward and the ability to provide products and services to these consumers in a cost effective way ought to be at the forefront of every life and pension provider’s strategy for the future.
Mistakes of the past:
The Spanish philosopher, George Santayana, famously stated, “Those who cannot remember the past are condemned to repeat it.” In essence, this is the danger for those providers who are approaching the auto-enrolment process thinking it merely requires a low-cost version of their existing group pension products.
Providers need to remember that this is not the first initiative that has been undertaken to increase the amount of people saving. When the government decided that the pensions industry had no credibility, they introduced stricter disclosure requirements, designed to prevent consumers feeling that they were being ripped off.
This didn’t have the effect required, as the public and press just seized on the information to criticise the industry for its cost base, so the next initiative was to introduce a low-cost alternative to personal pensions...
Previous Exaxe white papers can be found here: http://exaxe.com/white-papers
— Ampersand Advisory (@AmpersandAG) February 3, 2012