‘Safe harbour’ for employers needed to close savings gap, say industry experts

• Workplace is the key battleground for closing the savings gap, but employers need more support
• Mandatory saving is needed to reverse decline in long-term savings
• Technology offers means to make pensions more streamlined and easier for savers to understand

Employers need a ‘safe harbour’ to promote pensions initiatives to their staff if the deficit in long-term savings amongst the UK public is to be reduced, according to a new report from financial services PR consultancy MRM. The call comes as the burden on employers, particularly smaller ones, increases as auto-enrolment continues to be implemented UK-wide.

MRM’s report follows a round-table discussion which assessed the role of the workplace in closing the savings gap and includes views from:

• John Cowan, Executive Chairman, Sesame Bankhall Group
• Kirsty Worgan, Head of Sales EMEA, Bravura Solutions
• Katharine Photiou, Head of Workplace Savings – Product and Proposition, Legal and General Investment Management
• Henry Tapper, Founder, Pension Playpen
• Gregg McClymont, Head of Retirement Savings, Aberdeen Asset Management
• Gary Smith, Head of DC Consulting, Capita Employee Benefits

According to consultancy Deloitte, the savings gap could increase to £350bn by 2050.[1] Given the amount of time people spend at work and the consequential captive audience for employers and providers alike, the panel agreed that the workplace is the key battleground in the fight for a comfortable retirement for all.

Gregg McClymont commented: “The workplace will be the centre of long-term savings going forward. In terms of a single thing which could encourage that development, I would say from a regulatory point of view, it is having the employers’ needs at the centre of decision-making. If the workplace is the centre, and I think it must be, as the key agent on the site, the employee must know that their employer has their interests at heart and that employers want to do the right thing.”

Henry Tapper agreed: “There has also got to be something in it for the employer. Employers have to feel comfortable about financial education.”

According to the experts, a ‘safe harbour’ scheme would give firms access to hands-on support from both regulators and pension providers, ensure they are armed with the right information to choose the best schemes for employees and to communicate this to staff within the firm. Several panellists felt that a lack of incentives for employers, as well as fears of legal and reputational reprisals down the line if they fail to make the correct decisions now was preventing employers from engaging with pensions.

Gary Smith said: “The employer can see this as an opportunity to create a supportive and productive environment for their workforce – which attracts and retains quality staff. However, there is also an element of risk management here; employers are scared of the regulatory issues of giving advice. I think we need to create a safe harbour environment.”

Katharine Photiou added: “Until the employer has that safe harbour then even facilitating saving in the workplace is going to be tough. I think that might be part of the reason why it hasn’t happened yet. Once there is a safe harbour in the workplace, we’ve got to make it as easy to save as it is to spend.”

However, there was also a consensus that other measures were needed to halt the downward trend on saving. For panellist John Cowan, making saving mandatory was the most effective solution. “We need to make it mandatory to save. After all, it is mandatory to pay your taxes so it should be mandatory to save. People need to understand that they have a problem and they need to start saving. But unfortunately we’ve got a culture where people would rather spend the money now than save for the future.”

But technology must also be used more effectively to make pensions more streamlined and less complicated for savers to understand, according to Kirsty Worgan. “If you look at it from a purely technological perspective, we can build whatever we want to build nowadays. The real issue is having different providers and stakeholders working together to provide a format that the technology can work for. I can’t get over the fact that when people want to engage and buy something within financial services, it’s just very difficult for them to do and it needs to be much quicker.”

For more information on the report, or to download it, click here.

[1] http://www2.deloitte.com/uk/en/pages/press-releases/articles/uk-savings-gap-to-reach-350b-by-2050.html