Pensions: will they last?

pensions sector, study shows Shake-up long overdue in

ALMOST 90 percent of UK employers will review their pensions providers this year, 65 percent say providers are not doing enough to offer new products, and 63 percent want to see a new disrupter enter the market.

While the last 20 years has seen a shift away from final salary schemes to defined contribution plans, little else has changed. The majority of respondents to a survey by investment firm Smarterly felt the UK pensions market was “crying out” for fresh ideas and innovation.

The study shows 87 percent of employers intend to review their pension providers in 2020, with the overriding impression that customer service levels have fallen to the provision of a minimum service.

ANCIENT ORIGINS Pensions date back to ancient Rome, a reward, initially, for soldiers after their years of service. The first state pension came in Germany in 1890, and the system has spread to become global.

Or not, as the case may be. Support in old age is not guaranteed around the world, and up to a third of the world's older people have no pension. Those that do often struggle to survive on the amount they receive.

In developed countries, there is an assumption that workers will be financially cared for in old age — but that assumption is increasingly in doubt.

The challenge to the existing system is one of demographics and, ironically, improved healthcare.

Life expectancy has increased, while the number of workers coming into the system — thanks to decreasing birth rates — has fallen below the number required to support pensioners.

Steve Watson, head of proposition of Smarterly, said pension legislation had changed in recent years. Those changes, and financial pressures, have seen a move away from defined benefit schemes to defined contributions schemes.

But the products themselves have remained the same and there is very little innovation the market, he said.

“With employers now legally obliged to enrol their employees into a pension scheme, existing providers are under very little pressure to innovate.

“They still seek to compete on cost, of course, but with a captive audience, providers see no need to design ground-breaking products or offer outstanding levels of service — they know that there is ample business out there.” Given these difficulties, more than half of UK employers (54.4 percent) plan to carry out a pension review in the next six months. They are likely to be disappointed when they go back to the market. If their current schemes are failing young employees and higher earners alike, they are unlikely to find anything radically different on the shelves.

“Employers are unhappy about the status quo in the pensions market,” said Watson. “Legacy providers are simply not doing enough to keep up with the new generation.”

The research took into consideration the views of 250 HR professionals working in businesses with a workforce of 300+ employees.