‘The Age of Responsibility’ is a guest post by freelance journalist and presenter, Sam Shaw
The age of responsibility
Savers may have to face up to some harsh realities as long-standing perceptions of retirement sit quite contrary to the facts, or such was the key message coming out of a recent industry report on the future of pension saving.
Spearheaded by Lord Hutton and Redington, the UK’s fourth largest pension and investment consultancy (to which he acts as adviser), ‘The Age of Responsibility’ was published earlier this month with the intention of generating debate and raising awareness of the inadequacy of the UK’s current level of retirement provision.
The report was authored by heavyweight panel of contributors whose chapters examined multiple facets influencing pension saving, including: economics and demographics; behavioural insights and finance; policy; young savers; education; guidance; advice; technology; communications; investment products and strategy and governance.
A number of observations culminated with Lord Hutton’s recommendation that in the UK we should be striving for a minimum 15 per cent national retirement savings target. The ambitious target reaches far beyond the current auto-enrolment level of 2 per cent and highlights a significant shortfall – the Office for National Statistics UK household savings rate in 2010 was reported as 5.4 per cent.
Noting that 5 million new pension accounts had been opened since 2012, Lord Hutton praised the initiatives made so far by the UK government, such as the ‘nudge’ tactic of auto-enrolment, which certainly appears to be tackling the inertia problem. However, in order to genuinely become a nation of savers, he said the 15 per cent target more accurately reflected the challenges facing savers.
The once widely held view of stopping work at 65 or thereabouts and taking up pottery, improving your golf swing and gallivanting about on sailboats for the rest of your days as the stock images of “retirement” suggest are more fiction than fact these days, for the vast majority, anyway.
Robert Gardner, co-CEO at Redington shared the startling statistic that the first child to reach 150 had probably already been born.
The onus of responsibility away from the state and on to the individual is no longer avoidable and rather than a case of heavy-handed policy intervention, it was a combination of common sense.
Australian-style compulsion, introduced in 1992 was once touted as the benchmark the UK ought to emulate, but while it did introduce a savings culture, 20-odd years on they now face the risk of depleted pension pots – an unintended consequence of that more flexible access.
With the UK’s own pension freedom just around the corner and hordes of retirees probably NOT running off and buying Lamborghinis with their hard-earned retirement sums, education, flexibility and choice seem to be the key terms at play.
Learning and understanding more, embracing technology used in other aspects of every day life and effectively demystifying the jargon-filled world of pensions were the first steps in the right direction.
Felicity Algate from the Behavioural Insights Team described the ‘perfect storm’ of retirement and savings and suggested initiatives needed to subscribe to her EAST criteria – saving needed to be Easy, Attractive, Social and Timely. She said tapping into behavioural techniques would help motivate savers.
“It’s not necessarily about the rise in interest rates, it’s all about how you package it.”
She talks about removing the ‘hassle factor’, and adds: “When you ask people to do something matters.”
Ms Algate draw examples from submitting tax returns, suggesting that HMRC telling the UK public that most people paid their tax return on time led to a 15 per cent uplift in people paying their tax bill on time.
She suggested publicly committing to saving – as when people are encouraged to tell as many people as possible when they want to stop smoking or lose weight – helps keep people on track with their goals.
Dr Peter Brooks, a behavioural finance specialist from Barclays recommended a framework of ‘asymmetric paternalism’ – “nudge to protect those who can’t or won’t make a decision; but engage everyone else to increase the chance of confident, informed, and optimal decisions.”
Another emotional hurdle with pensions savings is the fact that we have become increasingly a nation seeking instant gratification in all aspects of life. We struggle with the idea of putting more away now to ensure comfort later because we can’t picture it.
For that reason saving and retirement messages often come in the form of scare tactics, designed to instil panic around things we haven’t done – not saved yet or not saving enough. This approach is hardly likely to encourage positive emotional attachment.
In his chapter on economics and demographics, Dr Amlan Roy from Credit Suisse pointed out that often with retirement issues ‘the cart is put in front of the horse’. He flagged how the industry all to often focuses on products, solutions, risk management and investment strategies “without a proper understanding of the macroeconomic environment and the big picture.”
Just working longer isn’t good enough either, apparently. We also need to be contributing more and getting our money to work even harder.
So how do we figure it out? Andrew Firth from Wealth Wizards said the term ‘pension calculator’ was receiving 2 million Google searches per month, suggesting that apathy towards figuring it all our may not be as inherent as we first thought.
“It’s a cop-out to say that people aren’t interested, it’s just that that tools don’t exist yet,” he said.
Lord Hutton said the “enormous, ground altering changes” with the demise of private sector defined benefit schemes and a shift to defined contribution, in which the individual, not the employer, bears all the inflation, longevity and interest rate risks.
I have to admit, in writing this I feel rather browbeaten. We need to start earlier, do more, make our existing savings work harder, explain things more clearly, educate more, make it easier, make it more immediate, work longer, live longer, save more.
The final word from the report quotes a Greek proverb, “A society grows great when old men plant trees whose shade they know they shall never sit in.”
Dr Roy said it more simply. We need to “work longer, live longer, be less selfish.”
Sam Shaw, Freelance Journalist & Presenter
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Sam Shaw is a highly experienced financial journalist and presenter with a background in advertising, marketing and television production and is a highly regarded commentator in the consumer investment press.
The age of responsibility is a guest post and the views here do not necessarily concur with those of Investment Quorum. In fact it is very often the case that we are largely in disagreement but we respect the opinions and views of others. Guest posts may appeal more to some than others and may often have an industry knowledge expectation.
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