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It’s time to consider compulsion

30 June 2014

In the somewhat dry and technical world of pensions it is a good week when life is enlivened by two parties expressing equally strong yet opposing views on a particular topic.

The most entertaining aspect of the government’s unveiling of its Pensions Bill last week was face-off between two of the UK’s biggest investment consultancy firms – Mercer and Aon Hewitt – over the plans for the introduction of a new third way of pension provision, known as defined ambition.

The key vehicle for this new pension system, which is a hybrid of both defined benefit and defined contribution, is collective DC. Aon is firmly is favour of CDC while Mercer is less convinced. I’m not a fan either: I outlined my problems with CDC in my recent blog post “Not this form of collectivism”.

It may come as a surprise, however, that it was not the public spate of two of the pension’s industries largest companies that was last week’s most interesting development. Instead the results of a survey conducted among members of the CIPD and PMI published by Professional Pensions was far more intriguing.

The survey, which was completed by 326 respondents, 60% of whom worked in human resources, delivered some interesting insights in auto-enrolment. And the most interesting response was in reply to the question: Should the government consider compulsion? – 57% of respondents said “yes”, while 30% said “no” and 13% were undecided.

This reaction is particularly noteworthy because it is direct contrast to the current mood music emanating from the government – there is very little appetite among politicians to make saving for a pension mandatory.

Despite the small sample size, it’s interesting that a majority of professionals who specialise in workplace benefits are in direct opposition to the current government stance and are in favour of making paying into a pension compulsory.

This response would be less interesting if auto-enrolment was the perfect solution to the current chronic lack of pension provision among the working population. But while it is a positive development for those who are included in the programme, there are millions who will still not have any form of pension provision.

This falls into two main groups – those who are employed but ineligible and the self-employed. Hargreaves Lansdown estimates there are around 4 million employed but ineligible. It’s much harder to know how many of the 4.5 million self-employed do not have any pension provision but the signs, as I outlined in a recent feature for Professional Pensions, are not encouraging.

While it’s always entertaining to see a piece of rather dry legislation such as the Pensions Bill enlivened by vivid debate, I can’t shake the feeling that the current focus on defined ambition is a rather spectacular waste of time and effort.

There are possibly as many as 8 million people in the UK who still do not have any form of occupational pension provision. The government should be focused on finding policy to address this issue rather than trying to develop a new hybrid pension scheme.

Rather than trying find the pensions third way, let’s have a proper debate about whether mandatory pension provision should be re-visited. And if compulsion really is off-limits, what other policies would ensure that every adult in employment has some form of retirement provision.

Charlotte Moore - post author

Charlotte Moore has been a freelance journalist since 2006, with a solid technical understanding of a broad range of financial topics along with a previous incarnation as an investment analyst. Along with journalism, she has experience of producing written material for corporates and is seeking to expand this part of her business portfolio.