PENSIONSANDSAVINGS.COM

• Is the pensions industry in danger of undermining auto-enrolment by failing to explain the many advantages of pensions?
  
• People need to know about the positives, not constant negative messaging, so they understand the free money they will have and higher benefit payments they could have if they keep paying in. 
• Since 2012, Government policy has brought millions more people into pensions, but providers have not managed to engage or enthuse their new customers with positive pension messages. 
• Extra money from employers, from the taxman and higher benefits for lowest earners will be lost,so, for example, reducing pension contributions by £100 could mean only having £40 more to spend now. 
• Instead of relying on scare stories in the media about later life penury, it is time to promote the reasons to keep paying in.
  

Pension providers have failed to explain the many advantages built in to private pensions: The Pensions Management Institute suggests that one in five of the 2000 workers they surveyed have stopped their pension contributions or are considering doing so. This is a travesty and highlights my repeated warnings in recent years that the pensions industry has not done nearly enough to enthuse people about their pensions, nor to explain the many reasons for building up money by using the advantages built into private pensions.

Why is pension messaging always so negative, rather than positive?: There are so many reasons to encourage people to increase or at least continue their pension contributions, even during the cost of living crisis. Scare stories about later life penury are not the way to engender positive pension feelings:  Every story about inadequate pension contributions is designed to encourage people to save more, yet often has the opposite effect.

People will have far less money to spend than the amount they stop paying in: It’s so important that people think very carefully before deciding to abandon or cut their pension contributions. The consequences for their take-home pay (unless they are low earners in a Net Pay schemes) will not increase their spending power by nearly as much as they stop paying in. They will lose out on the free money from their employer and from the taxman, which would be added to their pension fund automatically, but is never properly explained or highlighted by their pension provider. So they lose far more than just their own payments into their pension. Of course, if they would otherwise lose their home, be unable to afford basic bills, or have maxed out all their credit cards and have essential spending, they may be tempted to save some monthly outgoings by cutting pension contributions.  However, this should be an absolutely last resort, because they may find help from debt management services or state benefits instead.

Since 2012, millions of workers have been handed to pension providers on a plate: Auto-enrolment has been a success so far because over ten million people are newly saving in a workplace pension. But, instead of capitalising on this, by reaching out to customers directly as any other consumer industry would do, providers have just banked the success ‘so far’ and telling the Government to bring them more money by increasing minimum contributions or lowering salary and age thresholds. It seems they have not risen to the challenge of attracting people to want to pay in more, or even to keep paying in.  What a wasted opportunity.

Providers still have a chance to help people recognise pension realities: Pension contributions are misunderstood by most people. If you pay in £40, that can immediately become £100 or more in your pension as employer contributions and tax relief (except for low earners in Net Pay schemes) are added. So losing £100 of pension contributions from your pension, will only give people an extra £40 or less to spend.

People on Universal Credit could lose far more – who is telling them? Workers who are on Universal Credit will suffer a large reduction in income if they reduce or stop their pension contributions. Means-tested benefits may disregard payments into a pension and, Universal Credit, which is more generous than many legacy benefits, ignores the whole of pension contributions when it calculates net earnings. So, paying £100 a month into a pension scheme will reduce the income used in the Universal Credit calculation by the full £100. If their income is lower, they receive extra benefits, so a reduced income of £100, after applying the UC taper, means benefits will be £55 higher. However, stopping pension contributions of £100 will mean £55 less in UC. So workers on UC, will have only an extra £45 to spend, while losing at least £200 from their pension fund – and maybe even more.

Instead of relying on scare stories in the media about inadequate contributions, pension firms should start explaining the positives that customers need to understand before it’s too late.