Beyond the crisis - workplace pensions. January 2010

Transcription

1 Beyond the crisis - workplace pensions January 2010 BARROSO II

2 EXECUTIVE SUMMARY The European Federation for Retirement Provision (EFRP), representing workplace pension providers in Brussels, welcomes the political guidelines of President BARROSO on pensions and looks forward how the incoming Commission may develop those guidelines into action. We particularly welcome the President has underlined the strategic challenge of ageing and the importance of pension funds in the financial system. As a matter of fact, pension funds, or in general IORPs, are specialised institutions with the sole objective of accumulating and decumulating pension savings over a long period of time. As such they contribute to financial stability and provide European companies access to capital. IORPs are important players in many EU Member States 2 nd pillar pension systems. These systems have undergone profound changes over the last years. The main trend is the shift from defined benefit towards defined contribution and hybrid schemes. In other Member States, mandatory funded pension systems have been set-up. Member States are responsible for the organisation of their pension system but the Treaty does not restrict the Commission to work on pensions. In fact, over the last years the Commission has already put in place the building blocks for further Community action to promote adequate and sustainable pensions in the Member States: e.g. Ageing Report, Open-Method of Coordination used in the Lisbon Strategy, and IORP Directive. EFRP calls upon the Commission together with the Member States to put policies in place that: enhance workplace pension coverage be it in DB, DC or risk-sharing schemes increase contributions to workplace pensions are conducive for returning to the pre-crisis growth path maintain price stability deliver security at affordable cost while accommodating diversity implement counter-cyclical accounting standards allow for investment diversification and risk mitigation EFRP looks forward to work with the Commission to adopt a holistic approach to pension policy to ensure that pensions do their job in each Member State.

3 EFRP PAPER BEYOND THE CRISIS: WORKPLACE PENSIONS 2 1. PRESIDENT BARROSO S THOUGHTS ON PENSION Ageing is a major future challenge and millions of Europeans are dependent on pensions In his Political Guidelines to the European Parliament 1, Mr. J.M. BARROSO referred to the demographic change and the challenges it brings along. Ageing is a major future challenge. Longer life is a symbol of success we need to have healthy, fulfilling longer life spans. But it also brings challenges for sustainability, and we need to do more to respond to change, exploiting new technology-based solutions to preserve to the extent possible the independence of the elderly. This also requires a thriving economy to supply sound public finances, so that we can pay for healthcare for the elderly. Millions of Europeans are wholly dependent on pensions. The crisis has shown the importance of the European approach to pension systems. It has demonstrated the interdependence of the various pension pillars within each Member State and the importance of common EU approaches on solvency and social adequacy. It has also underlined that pension funds are an important part of the financial system. We need to ensure that pensions do the job intended of providing the maximum support to current and future pensioners, including for vulnerable groups. and thus more needs to be done to encourage Member States to deliver adequate and sustainable pension systems EFRP welcomes this high level policy statement and the commitment it contains to give pensions policy prominence at the EU agenda. Viewed from outside, it seems the Commission believes that more needs to be done to encourage Member States to deliver adequate and sustainable pension systems. EFRP believes the Commission could act as a facilitator for the development of workplace pension systems in the Member States. However, to be successful we would

4 EFRP PAPER BEYOND THE CRISIS: WORKPLACE PENSIONS 3 but working on pensions at Community level involves taking subsidiarity into account recommend the Commission to take into account the following constraints: Member States remain responsible for the organization of their overall pension systems; Hence, there exists a huge degree of diversity as to private workplace pension vehicles and methods to protect those supplementary benefits; Workplace pensions are embedded in national social and labour law;

5 EFRP PAPER BEYOND THE CRISIS: WORKPLACE PENSIONS 4 2. PENSION LANDSCAPE IN EVOLUTION Member States are reforming their PAYG pension systems In all Member States social-security schemes mainly financed through PAYG pension systems are coming under increased pressure due to ageing. To face its consequences, most Member States have undertaken some pension reforms to those PAYG state pension systems. such reforms are insufficiently coordinated at Community level as Member States are competent for organising their pension system Some Member States opted for parametric reforms (e.g. changing retirement age, benefit formula, etc. ) whereas other Member States went for paradigmatic reform (e.g. re-directing social security contributions to a second privately managed system). Those reforms were and are insufficiently coordinated at Community level since Member States are competent for their pension system. 2.1 Enlargement brought in more diversity Mandatory funded pension pillars have been established in many Member States in the CEEC region In May 2004, the EU was enlarged with eight Member States from the CEEC region and in 2007 two other CEEC joined the EU. In those Member States mandatory funded pension pillars had just been established prior to EU enlargement. Those Member States were inspired for their pension reform by the World Bank model of pension reform which was first implemented in Chile and other South American countries. Today, many CEE Member States consider that: their pension system is different from the traditional three pillar European pension model 2 ; the IORP Directive is inconsistent with their private funded pension system.

6 EFRP PAPER BEYOND THE CRISIS: WORKPLACE PENSIONS 5 In 2005 EFRP has established a CEEC Forum to promote the dialogue with the private pension industry in the CEEC and the regular EFRP Members and to raise the concerns of the private pension sector in Brussels. Indeed, the challenges that this sector is facing are different from those of Western European private workplace pension institutions (e.g. cuts in inflows to solve budgetary deficits of the government, investment restrictions, caps on fees, etc.) whereas others are similar (pay-out phase, supervision, financial education, etc.). 2.2 DC fastest growing segment of workplace pension provision EFRP believes that the adoption of the IORP Directive, in 2003, has brought the issue of occupational / workplace and more generally, private pensions to the fore in the Member States. We are happy that public debate on retirement provision and ageing is now firmly established in national agendas. Whereas in other Member States workplace pension schemes have undergone profound changes over-regulation and inappropriate accounting rules triggered a shift from DB towards DC and hybrid workplace pension schemes Whereas the IORP Directive provided an essential layer of regulation and has modernized the prudential rules of all kind of workplace pension providers in the Member States, the schemes (or products managed by IORPs) have undergone profound changes during the last years. The main trend is the shift from defined benefit towards defined contribution schemes and hybrid pension schemes. The DB closures are mainly due to over-regulation and inappropriate accounting rules (IAS19). The change in benefit design of workplace pensions is

7 EFRP PAPER BEYOND THE CRISIS: WORKPLACE PENSIONS 6 involving new and major challenges for EU citizens affecting the risk profile of European households which tends to remain unnoticed by many of them. We believe that this involves a new and major challenge for European citizens and their governments. It brings new issues such as adequacy, communication, governance, education to the debate on private pensions. A recent EFRP survey on DC pensions found out that already 60 million Europeans are enrolled in a workplace or mandatory DC scheme, totalling to almost 1,3 trillion of assets for future pension payments. The survey results showed also that DC pension provision will continue to increase either through increased coverage or through increased contributions.

8 EFRP PAPER BEYOND THE CRISIS: WORKPLACE PENSIONS 7 3. THE BUILDING BLOCKS ARE ALREADY THERE The European Commission has already worked on pension policy from different angles. As a matter of fact, the building blocks for bringing this issue to the top of the European agenda are all there. EFRP suggests the incoming Commission to coordinate these fragmented policy initiatives and thus to develop a holistic approach to pension policy: 2009 Ageing Report indicates that all Member States face financial and budgetary challenges to finance PAYG State pension systems - THE 2009 AGEING REPORT, DITTO COMMISSION COMMUNICATION [COM , ] AND THE SUSTAINABILITY REPORT have outlined the tremendous financial and budgetary challenge of providing adequate retirement income from government budgets. State pension benefit ratios are projected to fall by 20% in the EU-27 (see Figure 1), while additional expenditure cuts of 6.5% GDP (EUR 800 billion) are required to attain sustainable public finances. Figure 1: Public pension benefit ratio, % change, (Source: EC (2009)) Romania Ireland Greece United Kingdom Cyprus Belgium Luxembourg Denmark Finland Malta Slovenia Netherlands Hungary Spain Lithuania Czech Republic Germany EU-27 Bulgaria France Slovakia Portugal Austria Italy Sweden Estonia Latvia Poland Even if not spelled out in full, reading those reports

9 EFRP PAPER BEYOND THE CRISIS: WORKPLACE PENSIONS 8 and expects that the role of private pensions is due to increase triggering a discussion on the relative role, design and performance of the private pillar Also the EU 2020 strategy is expected to provide insights on how modern social security and pension systems could look like reasonably will bring the reader to the conclusion that private pension provision in Europe may be needed and has a role. Until recently this position was not accepted by all Member States. Further see: COM(2009)180, p.10 stating the need of an in-depth and open discussion about pension systems in Europe, and in particular a critical review of the relative role, design and performance of the private pillar. - THE SOCIAL PROTECTION COMMITTEE (SPC) 4 is currently working on deepening its reflection on the overall assessment of pension reforms in the last decade - we assume that this will be fed into the Lisbon Strategy post-2010 because labour markets and pensions are closely intertwined. The SPC has also started and will further develop its knowledge base about the new mandatory funded pension schemes in the CEEC region. SPC is also working on occupational private pensions which may be very helpful. THE OPEN METHOD OF COORDINATION (OMC) has been has been adopted to discuss among Member States the different social security and labour market issues. The Lisbon Strategy is the major work under this process. The OMC for social protection and social inclusion will be reinforced to reach stronger commitment from Member States to deliver on adequate pensions objectives. 5 - THE IORP DIRECTIVE has provided Europe with a state-of-the-art prudential regime for IORPs. The IORP Directive contributes to economic and social progress by encouraging retirement saving through

10 EFRP PAPER BEYOND THE CRISIS: WORKPLACE PENSIONS 9 IORP Directive is a comprehensive and modern regulatory framework the workplace. The consultation organized by the European Commission 6 and the subsequent public hearing 7 have confirmed that the IORP Directive is a comprehensive and up-to-date regulatory framework. CEIOPS work is helpful to map out and understand the diversity across the EU - CEIOPS has also done some work to map the different types of pension institutions under the IORP Dir. and the type of schemes those institutions are managing. 8 Those reports can be helpful for understanding the different types of vehicles used across the EU to provide work place pensions.

11 EFRP PAPER BEYOND THE CRISIS: WORKPLACE PENSIONS HOW CAN WORKPLACE PENSIONS DO THEIR JOB? Some steps have been taken, but more remains to be done to allow workplace pensions to do their job. The time has come to bring the pieces together into a holistic policy line on pensions systems for the EU Enhance workplace pension coverage Public pensions as a percentage of wages are expected to fall by on average 20 percent until It is likely that governments will decide on additional pension reforms aimed at expenditure control. As a consequence, people will not be able to maintain their living standard after retirement or may even in old age falling below poverty levels across Member States. More capital funded retirement provision is needed to enable citizens to maintain living standards The build-up of capital funded retirement provision is urgently called for to compensate for the fall in public pension replacement rates. The most appropriate channel for supplying supplementary pensions is the workplace. At the moment only 40% of workers in the EU are covered by a supplementary pension scheme accessed through the workplace. and the Commission could facilitate the exchange of best practices as to how Member States can best increase coverage of workplace pensions The Commission can act as a facilitator to exchange best practices as to how Member States can best increase coverage of workplace pensions. Member States have used different practices or combinations of them to increase coverage: compulsion, auto-enrolment, tax facilitation, collective bargaining, incentives for employers, etc. In this respect, EFRP welcomes the extensive exchange of best practices in Member States as part of the Open

12 EFRP PAPER BEYOND THE CRISIS: WORKPLACE PENSIONS 11 Method of Coordination in the field of social protection and social inclusion Increase contributions to workplace pensions Adequate pension provision for all citizens not only requires high coverage, but also sufficiently high contribution rates to deliver adequate levels of retirement income. Workplace pensions are built up of contributions and investment returns EFRP realises that in times of economic downturn, sponsoring companies might not have sufficient means to increase contributions to workplace pension systems. Workplace pensions however exist of two components: contributions and investment returns. Research indicates that 1% higher returns during 40 years of pension savings leads to a 35% higher pension. this involves a trade-off between affordability and security In our opinion these findings illustrates the need to discuss at EU level the trade-off between affordability and security of retirement income. Higher risk-return portfolios allow for lower contribution rates, but come at the expense of greater uncertainty regarding future retirement income. Uncertainty can however be smoothed/ reduced by all kind of risk-sharing mechanisms used by pension vehicles and the long-term investment horizon of these vehicles. which cannot be framed in a short term horizon Some argue to change the regulatory framework for pension vehicles into a short term framework similar to that for insurers and banks. EFRP is very concerned about this reasoning because it narrows down the debate to one issue: short term security. The whole Solvency II IORP discussion ignored the possible consequence on

13 EFRP PAPER BEYOND THE CRISIS: WORKPLACE PENSIONS 12 other equally relevant policy objectives. This illustrates the need for a holistic approach to workplace pensions to avoid that fragmented policy initiatives lead to dramatic changes for millions of European citizens Returning to the pre-crisis growth path A successful exit from the crisis is crucial because prolonged spells of unemployment results in people accruing less pensions Economic growth depends also on deep and liquid capital markets Throughout history nations have experienced many financial crises. An important lesson from past crises is that production may not return to its pre-crisis growth path for an extended period of time. 9 This would be very costly in terms of lower standards of living and more severe budgetary problems. But the adequacy of future retirement income would also be threatened. A lacklustre economy is likely to generate poor investment returns. Furthermore, career-breaks due to prolonged spells of high unemployment result in people accruing less pensions. Every attempt should be made to stimulate potential growth and restore the economy to its original growth path. The structural growth rate of an economy is determined by a wide variety of factors, such as competitive and innovative product / services markets and well functioning labour markets. But economic growth also depends on deep and liquid capital markets fulfilling the financing needs of companies. allowing pension institutions to provide companies long term capital and thus to contribute to growth and employment in Europe Pension providers, as long-term institutional investors, are well-suited to take up the latter role. The build-up of a strong capital funded pension pillar will provide European industry with a steady stream of long-term capital reducing the costs of capital for companies. This stimulates investments and, hence, increases economic growth and employment creation. In addition, capital

14 EFRP PAPER BEYOND THE CRISIS: WORKPLACE PENSIONS 13 deepening will improve long run productivity growth, enhancing EU competitiveness. Pension providers long term focus allow them to adopt a social and responsible investor policy A more prominent role of workplace pensions will also diminish the short-term focus on shareholder value, which was one of the causes at the root of the current crisis. By engaging in long-term shareholder relationships, IORPs have an interest in companies being managed in a responsible and sustainable manner. IORPs are already taking up their role as active shareholders by voting at general assemblies and by going into dialogue with companies on environmental and social issues. IORPs take up this role as active owners as it is in the interest of scheme members and beneficiaries that companies can develop robust long-term profitability rather than shortterm high profit making Maintaining price stability Low inflation is essential to maintain purchasing power of pension capital Maintaining price stability is another important condition to achieve high, sustainable growth. But low inflation is also essential to preserve the purchasing power of capital accumulated in workplace pension schemes. which best can be protected by a diversified investment portfolio Capital funded pensions are in practice very sensitive to high inflation. High inflation has a devastating effect on the value of some investment instruments like for example bonds. Hence the need to properly diversity the investments of pension assets to avoid a reduction of purchasing power of the retirement income. and the availability of inflation-protected bonds Inflation-protected bonds are an interesting financial instrument to avoid pension savings are eroded by inflation. But only seven EU Member States issue index-

15 EFRP PAPER BEYOND THE CRISIS: WORKPLACE PENSIONS 14 linked bonds and their proportion in government debt amounts to just over 7 percent (see Figure 2). In the euro area this number is with a share of 5 percent even lower. Figure 2: Proportion of indexed-linked bonds in government debt, 2008 (Source: Eurostat and national Ministries of Finance/Debt Management Offices.) Euro area EU-27 France Germany Greece Italy Poland Sweden UK Index-linked bonds Nominal bonds Inflation and increasing public debt levels are a toxic combination The abundant money supply and ample liquidity in the banking system may translate into a run-up of inflation for the next period. 10 At the same time public debt is rising rapidly all over Europe providing Member States with an interest in higher inflation to decrease the real value of the debt. This may well prove to be a very toxic combination. The risk to price stability may be mitigated if Member States would start to issue more index-linked bonds to finance government debt. This would help to align their interests with the goal of medium term price stability.

16 EFRP PAPER BEYOND THE CRISIS: WORKPLACE PENSIONS Deliver security at affordable cost while accommodating diversity Regulatory framework should deliver security at affordable cost The primary aim of private pension systems is to provide retirement income security at affordable costs. The crisis has illustrated that IORPs are able to deliver on that objective under the most strenuous of circumstances. Europe s IORPs absorbed the shock of the turmoil using various security mechanisms without having to rely to state aid. through counter-cyclical funding rules IORPs were even able to provide some stability to financial markets by rebalancing their portfolios. They did not have to act as forced sellers under the influence of prudential regimes with mark-to-market valuation and short-term risk-based capital requirements. Such supervisory regimes aggravated the recent turmoil by encouraging pro-cyclical investment behaviour of banks and insurers. Indeed, a major strength of the IORP Directive is that it allows Member States to implement counter-cyclical funding rules, in line with the recommendations of the OECD in its guidelines for core principles of occupational pension regulation. 11 while acknowledging that pension providers are specialised financial institutions different from banks and insurers The crisis has triggered calls for a further harmonisation of financial sector regulation. However, EFRP cautions against imposing the same level of harmonisation of the banking and insurance industries upon pension vehicles. IORPs are specialised financial institutions dedicated to the sole objective of accumulating and decumulating assets over a long period of time with the sole objective of providing a supplement to the state pension to avoid oldage poverty. This is an objective which is underpinned by social and labour policies which are still nationally

17 EFRP PAPER BEYOND THE CRISIS: WORKPLACE PENSIONS 16 organised. Any EU framework should accommodate for the wide diversity and variety of private pension providers As a first step towards EU wide workplace pension provision, the IORP Directive provides a prudential framework for IORPs based on minimum harmonisation and mutual recognition. The minimum harmonisation approach of the IORP Directive has accommodated the wide variety of pension fund regulations in the different Member States. Attempts to harmonize these differences may jeopardize workplace pensions. It might eliminate vehicles that are capable of providing retirement income in an effective and efficient manner. Instead, we propose a wide-ranging policy debate which would aim at incentivizing and increasing the development of workplace pensions in the Member States. To start this debate, the Commission could, for example: establish a High Level Expert Group on workplace pensions; issue a Green Paper Counter-cyclical accounting standards Volatility in sponsoring companies accounts due to workplace pension provision should be avoided Accounting standards may also severely and adversely impact on employers willingness to offer occupational plans to their employees. Last year, the International Accounting Standards Board (IASB) embarked on a project to revise International Accounting Standard 19 (IAS 19). The aim is to improve pension accounting of risk-sharing schemes and to reduce the number of options to recognize for gains and losses in a company s pension plan. 12 According to its tentative decision of June 2009, companies would have to include changes in assets and liabilities due to capital market

18 EFRP PAPER BEYOND THE CRISIS: WORKPLACE PENSIONS 17 fluctuations in the profit and loss account as from This would make reported profits very volatile and will encourage employers to close down occupational pension plans for all employees or for new entrants to change a DB plan into a Collective DC plan often this requires a significant up-front capital injection in the IORPs to make a buy-out to insurance companies at a higher cost or a lower benefit. The IASB has also decided to postpone the issue of risksharing plans until the comprehensive review of IAS 19, after The result will be a misrepresentation of net income as not all gains and losses are borne by the employer in risk-sharing schemes. Consequently, the issue of recognition should also be dealt with under the comprehensive review. Counter-cyclical accounting would better reflect the long-term nature of the sponsoring company pension promise It is questionable whether short-term fluctuations in interest rates and asset prices should immediately be recognized as occupational pensions are long-term commitments. Counter-cyclical approaches like smoothing of gains and losses over time or using more stable discount rates would better reflect the nature of occupational pension provision. See the REPORT OF THE HIGH LEVEL GROUP CHAIRED BY JACQUES DE LAROSIÈRE 14 stating that: It is irrelevant to mark-to-market, on a daily basis, assets that are intended to be held and managed on a long-term horizon provided that they are reasonably matched by financing.

19 EFRP PAPER BEYOND THE CRISIS: WORKPLACE PENSIONS Allowing for diversification and risk mitigation Financial institutions with systemic relevance should be subject to appropriate regulation The European Commission has embarked a comprehensive reform of financial markets 15 based on the recommendations made by the De Larosière Group. The programme includes a wide range of initiatives to enhance the regulation of financial institutions and measures to strengthen the EU supervisory framework. EFRP supports the overarching objective that all financial institutions with systemic relevance should be subject to appropriate regulation. Over-regulation and restriction of investment options for professional investors should be avoided However, EFRP cautions against over-regulation, particularly in the area of alternative investments and derivative markets. IORPs strive for optimal portfolio diversification to provide plan members with higher retirement benefits at lower risk. Alternative asset classes like hedge funds, private equity and real estate contribute to improving the risk-return characteristics of investment portfolios. IORPs make frequent use of OTC derivative instruments to mitigate financial risks, such as interest rate risk, foreign exchange risk and inflation risk, or to manage the investment portfolio in an efficient manner. The AIFM Directive should ensure that professional investors like IORPs maintain access to EU as well as non-eu alternative investment funds. Forthcoming legislative proposals to regulate derivatives markets should afford IORPs the flexibility which is sometimes needed to engage in tailor-made derivative transactions.

20 EFRP PAPER BEYOND THE CRISIS: WORKPLACE PENSIONS 19 REFERENCES 1 Political Guidelines for the next Commission, p First pillar: State PAYG systems, Second pillar: Funded Occupational/Workplace pensions, Third pillar: Individual Pension savings. 3 European Commission, Sustainability Report 2009, September SPC, Privately managed funded pension provision and their contribution to adequate and sustainable pensions, 2008, Brussels. 5 European Commission, Communication from the Commission A renewed commitment to social Europe: Reinforcing the Open Method of Coordination for Social Protection and Social Inclusion, COM(2008) 418, 2 July 2008, Brussels, page 3. 6 European Commission, Consultative document - Ref. Ares (08)14767, 3 September European Commission, Public hearing Harmonisation of solvency rules applicable to Institutions for Occupational Retirement Provision (IORPs) covered by article 17 of the IORP Directive and IORPs operating on a cross-border basis Summary of panel discussions, 27 May 2009, Brussels. 8 CEIOPS, Initial Review of Key Aspects of the Implementation of the IORP Directive, CEIOPS- OP-03-08, 31 March 2008 and CEIOPS, Survey on fully funded on technical provisions and security mechanisms in the European occupational pension sector CEIOPS-OPSC-01/08, 31 March European Commission, Impact of the current financial and economic crisis on potential output, European Economy Occasional Papers 49, June 2009, Brussels. 10 The ECB estimates in its Monthly Bulletin of March 2009 that the nominal money gap the percentage difference between the actual and desired money supply amounts to roughly 25 percent. 11 OECD, Private Pensions and Policy Responses to the Crisis Recommendation on Core Principles of Occupational Pension Regulation, June 2009, Paris. 12 IASB, Preliminary Views on Amendments to IAS 19 Employee Benefits, Discussion Paper, March 2008, London. 13 IASB, The future of IAS 19, Presentation, June 2009, London. 14 The high-level group on financial supervision in the EU, Report, 25 February 2009, Brussels. 15 European Commission, Driving European recovery, Communication, COM(2009) 114, 4 March 2009, Brussels.

21 EFRP PAPER BEYOND THE CRISIS: WORKPLACE PENSIONS 20 ABOUT EFRP The European Federation for Retirement Provision (EFRP) represents the various national associations of pension funds and similar institutions for supplementary/occupational pension provision. Its membership at large consists of institutions for workplace (2 nd pillar) retirement. Some of them are also operating purely individual pension schemes (3 rd pillar). The EFRP has 28 members associations in most EU-15 Member States and other European countries that have a significant in size and relevance workplace pension system 15. Within EFRP the Central & Eastern European Countries Forum (CEEC Forum) has been established (26 October 2006) to discuss issues common to pension systems in that region. 83 million EU citizens are covered for their workplace pension plan by EFRP Members. Through its Member Associations the EFRP represents approximately 3,5 trillion of assets (2008) managed for future occupational pension payments. EU register ID: Contact Ms. Chris VERHAEGEN Secretary General Koningsstraat 97 Rue Royale 1000 Brussels Tel: Fax: efrp@efrp.eu

22 Koningsstraat 97 rue Royale B-1000 Brussel Bruxelles - Tel Fax Workplace pensions deliver High participation Behavioural economics has taught that people do not save enough by themselves for maintaining a comfortable living standard during retirement. Most individuals are short-sighted and keep postponing saving for future pension income. Today s consumption is preferred over tomorrow s income. Low operating costs Workplace pensions exploit economies of scale, avoid principal-agent problems commonly encountered in the financial services industry and keep marketing and sales expensed at a minimum. 1% higher returns during 40 years of pension savings leads to 35% higher pensions. Professional investment decisions Workplace pensions do not require plan members to take investment decisions. Most individuals are not capable of making such decisions in a rational and sensible way. Moreover, individuals investment patterns show a lot of inertia which prevent them from making good financial moves. Workplace pension scheme participants benefit from professional decision makers who act in the best interest of scheme members and beneficiaries.