The government is fighting a battle to ensure that future pensioners save enough for their own retirement and minimise their reliance upon the state. In that fight, they have now enlisted The Sun tabloid in order to reach out to the masses that would not normally come in contact with the financial sections of newspapers where issues like pensions are usually raised.
The Department of Work & Pensions' (DWP) commissioning of an article in The Sun, essentially an infomercial, written under the by-line of The Sun’s Money Expert Jasmine Birtles, is an interesting approach to raising awareness of auto-enrolment, but it’s not a method without risks. Instead of buying advertisements, the DWP has come up with the idea of paying for a ‘joint’ article to be printed that extols the virtues of auto-enrolment and advises workers not to opt-out from the scheme. While the DWP deserve credit for coming up with an imaginative way to reach out to a wide range of workers, there are a number of issues that may well backfire with this approach
Firstly, there is the credibility issue. If one looks carefully, one can see the logo of the DWP in the corner but to the average reader it will appear to be Jasmine Birtles’ opinion without any linkage with the government. This can only be categorised as misleading to the public. Even the headline – “Count me in on auto-enrolment” isn’t reflected further on in the article, as Ms. Birtles never reveals her own pension arrangements, if any.
Secondly, it over-promises. The article begins with an appeal to the consumerist instincts of the population, asking people do they wish to have a retirement ‘full of cruises round the Med and glamorous parties’. This is the kind of false pitch that the FSA have been campaigning against for years. No one seriously believes that auto-enrolment of those who currently have no pension will deliver them a lifestyle that their current full-time wages don’t support. If it’s not ok for IFAs to make misleading promises, why doesn’t this same rule apply to either The Sun or to the DWP?
There is also the reference, bolded and capitalised, to ‘FREE MONEY’, referring to the employers contribution. Of course, if auto-enrolment is successful and all eligible jobholders start saving for their future then this will cover the entire population. Does anyone seriously think that wages will stay at the same level over time, that industry will just accept a 3% increase in labour costs and subsequent loss of competitiveness at a time of difficult global market conditions? It’s far more likely that over time, lower wages will emerge to ensure that overall the effect is zero. Ultimately, there will be no free money from the employer.
The same is true of the government’s contribution via tax relief. In the event of the entire population being covered, the government would either have to cope with a 3% drop in PAYE receipts and reduce services accordingly or increase taxes in other areas to get back the money they had lost. No prizes for guessing which road they’ll take. Ultimately, taxes will go up to compensate and each individual’s overall tax burden will remain constant. There will be no free money from that source either.
The problem with the DWP’s approach is that it is fundamentally misleading and risks undermining the whole auto-enrolment process. It would be better to take a more honest approach; to make it clear what level of pension will be available to pensioners from the state in the future, to show them how little it could buy, and to use fear to drive savers into the schemes. After all, it was knowledge of how badly off pensioners were in the forties and fifties that made so many baby-boomers value pensions and save for them either via company or personal plans
Being honest with the public about why they should save instead of trying to lure them into it would be a big step forward. The fact remains that pensions are complex and attempts to simplify the message without simplifying the product are fraught with danger. The DWP could yet regret its endorsement of a message that has so many flaws.
What do you think of the article in The Sun? Let us know what you think in the comments below!
— Tom Murray (@TomMurrayDublin) June 27, 2012
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