It seems that a week doesn’t go by without another survey ruing the fact that people still aren’t saving enough for their retirement. Those of us in the pensions industry would not be surprised to learn that there’s greater certainty of income from both State and Defined Benefit (DB) schemes with Defined Contribution (DC) schemes causing a far wider spread of outcomes.
Since the introduction of auto-enrolment there has been a seismic shift in the pensions landscape with 15 times as many people now saving into a DC arrangement than into DB schemes.
So, there are more people in DC than in DB but DB outcomes are higher than in DC. So, we should all be stuffing any excess cash (assuming we have some) into our DC pots.
Right?
Wrong. Apparently the top reason for saving money among the over-50s is for a holiday with saving for retirement only coming in in second place.
Sun Life’s recent research Finances after 50 2021 shows that only around 20% of savers are confident they can fund their retirement properly through their current savings provision, with nearly a third of over-50s worried they won’t have enough to live on in the future and more worryingly 16% with less than £100 in savings.
If we can’t even persuade those closer to retirement to save more then are we just fighting a losing battle? We all know that you can’t delay retirement planning as any last gasp attempts won’t cut it in a DC scheme. We’re all aware of the positive effect of compound interest on savings made at a younger age...as Albert Einstein said “compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it”.
But life just gets in the way, doesn’t it? And it’s not particularly encouraging for women either. The UK pensions gender gap stands at around a 38% difference between the size of pension pots of men and women.
With women more likely to face life events which not only reduce their income but also negatively affect retirement saving, then tackling wage inequality is of paramount importance. Women must be encouraged to continue to save but the combination of lower salaries and long career gaps, with little or no pension saving for years, put them at a massive disadvantage.
The Covid-19 pandemic has put this area into sharp focus too with more women in lower paid roles or working in the retail and hospitality sectors who may have opted for reduced hours or been furloughed.
Are there any rays of hope among today’s younger generation?
Many get a bad press, seemingly more preoccupied with a consumerist lifestyle to take saving seriously. But for many, saving for a home or paying off student debts are the harsh realities and these costs take priority.
With 90% of 11-18 year olds now thinking they should be taught about pensions at school to help them manage future finances, it’s an encouraging sign that they are looking ahead and thinking about their future finances. The earlier people can get into a regular savings routine and understand why they are doing it, the better.
So, could early intervention be the key to the pensions saving problem? Is earlier engagement as well as more education to improve the financial literacy of the general population (and not just enforced auto-enrolment when people start work) what’s needed?
Engagement is a word much bandied about in pensions with the hope that with the dashboard, seemingly to become a reality in 2023, will spur people into saving more as they look in horror at the realities of what they might retire on. But this is such an over-simplistic attitude of many in the industry.
Yes, we all know we should save more and start at a younger age. Ask most people and they know this is the right thing to do. If they could, they would. But pensions seem to constantly be stuck at the ‘it’s on my to-do list’ position, never quite reaching the top in terms of importance. We all just seem too content to kick pensions down the road. Who or what is going to kick it back to us and make us take action?
Jemma Jurgenson
Head of Administration, Quantum Advisory
