Two fifths believe auto enrolment will increase risk aversion

Two-fifths (39.2%) of UK pension professionals questioned by Barings believe that auto-enrolment will necessitate greater risk averse investment strategies to some extent, with one fifth (19.6%) saying that it will ‘definitely’ have an impact.  Only 2.2% said that it will ‘definitely not’ have an impact.

The Department for Work and Pensions estimates that auto-enrolment will result in between five and eight million people saving into a workplace pension for the first time or saving more, with extra contributions of £9 billion annually from 20202.  Much of this new money is expected to come from low to moderate earners who, up to this point, are not likely to have had access or been eligible for their employer’s pension and are therefore likely to be more risk averse.

Andrew Benton, Head of UK and International Institutional Sales at Barings, commented:

“The onset of auto-enrolment constitutes a major shift in the UK pensions landscape.  Figures from the Government show that most new savers will be those on relatively low incomes who have never saved into a pension before and have, therefore, a lower risk appetite.”  

According to the Barings’ poll, UK pension professionals expect to see an upswing in communication between schemes and their stakeholders due to auto-enrolment.  Just under three quarters (73.9%) stated that more regular meetings would ‘definitely’ or probably be needed between trustees of defined contribution schemes and their advisers. Furthermore, 87% of respondents felt that more should ‘definitely’ or ‘probably’ be done to inform members of DC schemes about their investment options.

Andrew Benton added: “Considering the high influx of new savers to the pensions world, it is not surprising that communication will become even more key for trustees and pension scheme professionals.  Decisions made will have an impact on even more savers, many of whom will have a wider range of profiles in terms of risk and desired savings outcomes.”