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Otto Thoresen speech at NEST forum

Wednesday 7th March 2012

Good morning everyone and welcome to NEST’s Forum. And a particular welcome to our overseas guests and speakers.
Today we are talking about understanding a new generation of savers.
A make or break issue for a country with chronic under-saving and an ageing population.
Improving our understanding of their savings preferences, their preferred ways to engage, and what makes this new generation persist with saving, is fundamental to the success of auto-enrolment.
The new generation of savers auto enrolled into pension saving, will see not just young people saving for the first time, but many people in their 30s, 40s and older saving in pensions for the first time too.
So as Government, NEST and industry, we have the challenge of dealing with a very diverse mix of people.
Today we have an opportunity, to take stock and hear from noted academics about their own experiences internationally…
And about what they have learned and observed about saving across different ethnic groups, age groups, earners and professions.
So much of the recent UK pensions debate has focused on implementation, I think we can all agree it’s time to focus on these important issues.
This morning, I am going to use my time to talk about some of the work the insurance industry is doing to help people not only to engage in saving, but to persist with the habit, from when they first start saving to securing their regular income when they come to retire.
Let’s just recap on some of the challenges.
We are all too aware that today’s economy is markedly different to that ever envisaged when the plans for auto enrolling employees into pensions were created.
We are facing a low growth economy, perhaps for many years to come.
The equity markets are delivering low returns on investments.
The Government is focused on reducing the deficit, with the UK seeing at least seven years of spending cuts – a fiscal position unprecedented in modern British politics.
And many businesses who will have to implement the pension reform changes are working hard at cost control within their firms.
Not to mention the spending pressures facing households and families, which means people have little appetite for increased saving.
The ONS have revealed that in 2011, the proportion of employees who belonged to a workplace pension scheme was 48 %.
Of course, we need to get that figure up.
This is the first time that figure has fallen below half since that research began in 1997 – when 55% of employees belonged to a workplace pension scheme.
But there is some room for optimism. ABI consumer research shows that more than half of people not already in a company pension are willing to remain opted in when the scheme is rolled out.
And a Standard Life report looking at the ‘squeezed middle’, released last October, found that by presenting clear and effective information about auto-enrolment, 82% of people would remain opted in.
That is, as the report says, a hugely encouraging find.
The arguments as to why we need to save are well worn and more than understood by everyone in this room.
But the success or failure of pension reform will be determined not by convincing people of the need to save – indeed recent ABI research shows that 81% of people want to save more. But rather the challenge is to make them do something about it.
So the questions facing us today, are:
How do we engage those 81% of people that want to save more?
How do we keep them saving all the way to retirement?
And how do we convert the remaining 19%?
Young people are challenged by debt, from student loans, to the costs of setting up a home or getting a job, so we need to put ourselves in their shoes.
Research by AVIVA shows that 38% of 24- 35 year olds think it is not worth saving for retirement.
The industry, NEST and the Government are geared up for the challenge of making it easier for this group to get involved in saving.
Findings show that a hard-sell puts young people off.
But we know that over 19 million people in the UK have social media accounts, smartphones and many more are avid users of the internet.
To tap into the younger age group and tech savvy savers, in a way that is both easy and natural for their staff, AVIVA have rolled out a facebook page and internal intranet videos they can watch.
These videos feature a ‘People Like Me’ clip, that shows a member of staff talking about their pension plans.
Much as we Chief Executives or Director Generals would like to think our staff listen to us most of the time, when it comes to personal pensions or financial matters, they are looking for fellow employees just like them – people they can easily relate to.
AVIVA’s measures have resulted in a 66% increase in online visits.
AVIVA also promote the ‘free money’ concept of getting tax relief and employer contributions to your pensions.
Providing simple and consistent ways to track money is further backed up by the findings in Standard Life’s report.
This shows that employees will increase their contributions if they are shown they are not saving enough at each opportunity.
For example, 28% of staff enrolling with a 4% contribution said they would consider contributing more if their ‘pension progress’ was shown on their payslip.
AVIVA have seen this take effect too, by introducing a pension tracker, a bit like online banking for your pension.
And AVIVA have been piloting tracking technology on the iphone. Given that from 2014, more people will have a smartphone than a laptop, it will be vital that the industry is up to date with trends and engaging people through their preferred medium.
Examples like these from ABI members will underpin successful engagement of savers with pension products.
When the music industry first came in to see Steve Jobs to talk about the how they wanted to sell their music to customers, Steve turned their views upside down.
He did it through simplicity; without trying to go against the grain of current trends and customer behaviour; and by delivering what the customer wanted, before they even knew exactly what it was they wanted.
We could use some of that magic, innovation and forward thinking about retirement saving.
These positive steps taken by employers for the new generation of savers, need to be supported by a more holistic approach to financial capability – catering to every age group.
Coupled with financial education in schools, delivered through charities such as the Personal Finance Education Group and included on the curriculum.
Signposting people to free, impartial advice, given by outlets such as the Money Advice Service.
In the up and running auto-enrolment world with more savers with different needs, having trusted, independent sources of advice and guidance will be key to keeping those people motivated to save.
The Money Advice Service’s tailored approach for various life stages also makes it a source of advice with longevity – one that people can return to as they age. And their priorities change.
But it is not just about providing financial education and information for workers.
Engagement is only one part of the solution. The very foundation of pension reform is that it provides a solution which works from ‘first job’ to ‘in retirement’.
So our role extends all the way from when you start saving, to helping you to convert your savings into a regular income when you retire.
We are working hard at fixing the plumbing of the current system, as well as engaging people with the new.
Last summer I talked about my ten point plan to put ourselves in the customer’s shoes.
To make our products, our communications and our services simpler.
I could list many examples where we have done this. And I hope the examples of engaging workers in saving show the industry moving in the right direction.
But I will highlight our most recent example of this positive action – one that is particularly relevant to today’s debate.
On Monday the ABI published our new Code of Conduct to ensure customers get the best deal for their annuity.
All customers approaching retirement need to shop around and make use of what we call, the Open Market Option.
70% of our customers already shop around, with 40% switching provider.
But we want to get those third of customers who don’t shop around to do so.
You wouldn’t buy a house without taking a look at a few different homes first – and an annuity should be no different.
A friend of mine, Alan Higham, has a good analogy for shopping around for your annuity.
You arrive on your first night to stay in the heart of a city in Turkey. Your plane has been delayed and you’ve arrived late in the evening. You are staying in the medina, and you ask your hotel manager where you and your husband might find a good restaurant to eat.
He tells you, that if you go out into the medina, take a left, cross the market square, walk down the hill, through the bazaar (it will be dark and frightening at this time of night but there are hardly ever any incidents), take a right down a back passage and then another left down a dark alley…
…You will come to a gate. Go through the gate (if its open, sometimes they leave it locked), and you will reach an exquisite Turkish restaurant, in a beautiful Rhiad, set around a courtyard pool. And it isn’t too expensive either. The journey is worth it, the hotel manager says.
Or, he adds, there is a good pizza restaurant in the hotel which is just across the hall.
Which do you choose?
This story really struck me.
We want to move into a space where you can take a right or a left and both times have the confidence that you will end up at a reasonable destination that is easy to find.
Using directions that are easy to understand.
Our new Code of Conduct is a significant step in the right direction.
Under the new Code, ABI members will radically overhaul their customer communications and processes to ensure customers don’t make inertia purchases.
We want to encourage people to consider carefully what type of retirement income product they buy, and to support them while they shop around.
The compulsory Code will:
-provide clear and consistent communications;
-highlight enhanced annuities and the higher income they can offer;
-signpost customers to advice and support from different, trusted sources like the Money Advice Service and regulated retirement advice specialists;
-establish transparency in the annuity market so customers have a clear picture of how individual providers’ product offerings fit in with the wider market.
The ABI’s compulsory Code of practice comes into force and will have to be implemented by our members on 1 March 2013.
And we will also continue to work closely with all parts of the pensions industry to improve the effectiveness of the market further.
Before I close today, I want to leave you with a final point, about the tone of the pensions debate.
Insurance companies are ready to admit that we don’t have the best track record over the last 30 years.
We have made progress. Our Code of Conduct on annuities brings us a long way toward helping our customers more with a key financial decision. Toward becoming more transparent and achieving better outcomes for our customers.
But we cannot ignore the current public mood of scepticism and wariness of financial services.
Whether you are a provider, a trustee, an analyst, a broker, an insurer, a trade body or a fund manager. Even the media.
The public’s already bruised and battered confidence in the financial services industry is being undermined and eroded further by repeated attacks aimed more at grabbing headlines than improving outcomes.
We know the insurance industry isn’t perfect, which is why we are working at fixing the ‘plumbing’ of our industry.
But it is for those that understand how the current system works – with all its failings – to engage across the whole retirement industry, and make it better for consumers.
So we need to move the debate on.
And it is time to talk in terms of solutions.
The consequences of ageing are triggering a societal, cultural and economic shift that demands we move this debate on to how we can make pensions reform a success.
650,000 people turn 65 each year; one in four of us will require long term care, and everyone will want – and our customers deserve - to live as comfortable a lifestyle as they can in retirement.
Growing older will never be a risk free endeavor. But everyone deserves a level of financial security in their later years.
It is time to move toward working together to fix the current system of pension provision and lay the ground for a better one for the future.
To look at innovative ways to address our ever changing world, and our consumers ever changing needs.
The introduction of auto-enrolment provides us with the perfect opportunity to do so.
Thank you.

Last updated 01/07/2016