Written by Simon Bussy on Tuesday 10 March 2015
And Bob was right.
The pensions time bomb – a combination of an ageing population and a chronically poor savings discipline – is not a new phenomenon, yet is ticking ever louder.
How many articles have you read? How much money has the industry spent on yet more research to confirm what we already know?
That those approaching retirement now wish they’d saved more into their pension or other savings vehicles. (Let’s face it, if you’ve only got a pension pot of £30,000 or £40,000 (current UK average), or perhaps even a bit more, the new pensions freedoms – whilst welcomed – will not be a life changer. We all need a ‘pot’ big enough for the freedoms to make a difference).
Or the very real challenge of engaging with the millennials generation, where a need for ‘instant gratification’ does not sit well with putting money aside for a ‘future’ that’s 30, 40, 50 years away….
Yes, we’re all aware of the key challenges we face to change the behaviours, the thinking, the very core of what makes us ‘tick’, to make us save more for our futures.
And we as an industry have to look in the mirror and take our fair share of responsibility, too, in hindering progress to reduce the Savings Gap – complexity and overwhelming ‘choice’ leading to indecision and inaction, more financial ‘scandals’ than I care to remember, and a frustrating inability to truly communicate and engage with our audience……….not helped of course by the mountains of rules and red tape that means our Regulator remains some steps behind those wanting to truly innovate and shake up the industry.
No doubt auto-enrolment will help. Indeed, is helping. But is it enough?
Quite simply, no.
With minimum employer / employee / State contributions currently at 2% pa, rising to 5% in 2016, and then 8% from 2017 onwards – for many, this will simply not generate the size of pension pot needed to have a quality retirement. Indeed, I would suggest that an 8% annual contribution will actually give people a false sense of security, that they’re “doing what’s needed”…… and sadly, will be in for a real shock when they find they are unable to retire when they want to, or have to accept a much lower standard of living than they were expecting.
In Australia the Government has recognised the challenge and is moving to an Employer contribution of 12% by 2025. My view is that the UK should have the foresight and ambition to push much further than this, to escalate automatically each year to something north of 15% as a combined Employer and Employee contribution, dependent on age and size of existing pot.
I’ll be the first to say this isn’t an instant fix of course - this is generational change - but just imagine the impact this would have on the (much longer) retirements of today’s school children – perhaps our children? - if this became the ‘norm’?
And yes, dealing with debt, creating a ‘rainy day’ fund, helping the lowest paid, are also real challenges that would need to be addressed. But don’t let’s use these as excuses for the vast majority of people in UK who can – indeed must – take responsibility to plan for their own futures. To accept that any State benefit should simply be the icing on top of their own cake, which they’ve carefully built up over a number of years.
I’m a firm believer that we can always find a reason NOT to do something, to point the finger at someone else, to shirk responsibility. To say it can’t be done.
Well, quite frankly, it’s about time we stopped pussy-footing about, made pensions saving compulsory in the next Parliament, and leave our children with a legacy we can be proud of.
And this isn’t just aimed at those responsible for Government policy. This extends to all of us in the Financial Services industry.
Yes, we have a duty to develop the financial services ‘ecosystem’ of the future – the operating model, the integrated technologies, the open standards to pass data around easily and fluently, the communications and the clever micro-payments functionality to engage, to compel, to excite even.
And without wishing to sensationalise – failure is, quite simply, not an option.
“Yes, how many times can a man turn his head,pretending he just doesn’t see? The answer, my friends, is blowing in the wind.”