I am falling out of love with pensions.
The 2016 Budget and the subsequent labelling of the ‘new kid on the savings block,’ the Lifetime ISA (LISA), as a Trojan horse, got me brushing up on my Greek tragedies.
The reference in the title, as you may know, is the riddle of the sphinx, relating to the stages of development of Man. The baby crawling on all fours, in midlife standing proud on two feet and as we age, the third stage, requiring a stick, the third leg.
"Over 89% of people would save for a pension if they could afford to - affordability is key"
Our Generation why? Survey (aimed at employees) also approaches savings for three distinct age groups; 18-29, 30-49 and 50+. This is the second survey we have undertaken and it looks at the drivers and motivation to save between the various age and affluence cohorts.
The backdrop to this survey is a real concern around the position of UK Wealth plc. Some stark facts to highlight this:
- 53% of individuals reported that their financial debt was at least ’somewhat of a burden’, according to the Office of National Statistics (ONS) Wealth and Assets Survey 2012-2014
- 26% of households had negative financial wealth, with 37% of 25-34s being in this position according to the same ONS Survey
The picture, therefore, of a happy and secure financial retirement reads like a Greek tragedy but it’s worse than that. The reality is that, ignoring even long-term savings, indebtedness is prevalent and like any disease it is not constrained by age or affluence.
If we are to solve the saving crisis in the UK indebtedness itself needs to be addressed first and foremost. Total unsecured consumer debt rose by 9%, now standing at £239 billion – nearly £9,000 per UK household according to PwC.
The early years
Some of the stats in our report around the 18-29 age group, whilst painting a potentially grim picture, do allow for a chink of light to shine through. Within this group, the main financial burden when earning less than £20k a year is paying off debt (a shocking 47%) while the more affluent earning £40k+ a year were also dealing with debt but it was the main financial burden of only 22%.
For those earning below £20k there wasn’t one that had saving for a pension as a priority, whilst for those earning over £40k only 17% saw this as a priority. Almost 50% in the £40-£75k affluence category saw their priority as saving for a house.
One of the reasons may be down to the fact about three out of four people said they don’t understand pensions but (and here is the ray of light) over 89% of people would save for a pension if they could afford to. Affordability is key.
Whilst LISA addresses potential to save, it creates choice around how people will spend disposable income as clearly we are constrained as to what this choice will be.
Making the right decision
My fear is immediacy. People will make the decision to opt out of longer term saving in their workplace pension and lose a valuable employer contribution. A poor decision in the long run but can you blame them considering the difficulty in understanding what a pension is?
Employers are caught between a rock and a hard place and have already been warned over the concept of promoting opting out but what really is best for your employees right here, right now?
This article first appeared on REBA global