Should we build on inertia or engagement?

Pardon the Interruption

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Fundamental differences about engagement versus inertia continue to blight the industry and policymaking. Is this lack of consensus bad for outcomes? 

The UK pension system has two diametrically opposed approaches to accumulation and decumulation, building on people’s inertia in the first and demanding engagement for the latter, but people tend to fall into one of the two camps, arguing that their approach should apply across pensions as a whole.  

A panel at the Pensions and Lifetime Savings Association’s annual conference on Friday displayed this division over whether one should take precedence over the other.

BBC Radio 4 presenter Paul Lewis argued that “there is absolutely no need to engage, the only reason is because you lot make it so complicated”, he told the audience and politicians. “You’ll never get more than a low percentage to engage.”

His view was shared by director of policy at Royal London and former pensions minister Steve Webb, who said he did not want his children to have to think about pensions instead of “dreaming dreams” while they are young.

“What we need is a system where people don’t know, don’t care, but get decent outcomes,” he said, although he conceded that scams awareness is important.

However, Young Money blogger Iona Bain said this view reflected the system as it was and failed to acknowledge the changed reality in the pensions landscape.

“We can’t turn the clock back. We are in this world where individuals have to take more risk,” she argued, and while engaging people on pensions is “incredibly difficult”, she added, “that doesn’t mean we shouldn’t do it”.

Bain said people want to have a greater understanding of money and pensions and that having this increases their wellbeing, too. “Money management is a fundamental life skill we all need to learn,” she said.

The simple message people should be given, she added, is that people should try to save as much as they can, as early as possible.

This simple message is what constitutes engagement, said Chris Curry, director of the Pensions Policy Institute. “What you can do is set up a system that works,” he said, while acknowledging thata “it’s never going to be the case that there is ‘one size fits all’. There will always be people who don’t engage.”

The notion that engagement among young people could be increased through environmental investments was quickly dismissed by Bain, who said while it is an issue for many young people, there was “a danger that we overstate how important environmental and ethical investment is for young people”. Instead, what motivates young people is “just knowing that they have enough”, she believes.

Does lack of consensus on the need for engagement impact outcomes?