Clear message to save to accompany automatic enrolment

AEGON says clear messages at the point of automatic enrolment that it ‘pays to save' are needed to give people confidence in the Government's pensions reform proposals.

AEGON is calling on DWP to provide clear messages, at the automatic enrolment stage, on the benefits of saving for retirement, and the risks of not doing so. AEGON says DWP should also highlight the select scenarios where it will not be in a person's interests to save, due to the interaction of means-tested benefits with retirement savings.

As the DWP publishes draft regulations on the automatic enrolment process under pensions reform to be introduced from 2012 [dwp.gov.uk/consultations/2009/pensions-auto-enrol-regs2009.pdf ], AEGON highlights people will need to be given reassurance from Government that saving is in their best interests. Many people may question whether they can afford to save, but AEGON believes they should be aware of the implications of not doing so.

AEGON believes pensions reform, which will introduce automatic enrolment with an employer contribution, will boost the retirement incomes of millions of people. But many will need reassurance that saving for retirement is the best move for them. In addition, although the DWP's recent means tested benefits report dwp.gov.uk/consultations/2009/pensions-auto-enrol-regs2009.pdf showed that, under automatic enrolment with employer contribution, 95% of people would receive back an amount greater than their original contributions, some select groups - people with extremely limited entitlement to the state pension and people renting in retirement - would lose out.

AEGON believes more needs to be done, at the automatic enrolment stage, to signpost the advantages of saving, as well as the groups of people that are unlikely to benefit. This will allow the government, industry and the media to get behind the message that, for the vast majority of people, it pays to save.

Rachel Vahey, head of pensions development, says: "We can't take the risk pensions reform will be derailed by people opting out unnecessarily because they are worried they might lose out financially.

"I am 100 per cent behind the pensions reform principles and using inertia to work in favour of pension saving. But people can't sleepwalk their way to saving. They need to understand why they are doing so, what they stand to gain, and be confident they will be better off as a result.

"Ideally, we need to simplify the way the benefit system interacts with saving and there are a few good ideas on the table such as increasing the trivial commutation limit or introducing a pension disregard in means testing. But at the very least people will need clear information when they join the scheme to reassure the vast majority that saving is the right thing to do, and also to point out to a very that they should opt out."