Save more, younger; it’s not a new concept but it is the mantra which will keep us from poverty in retirement. And the onus is not entirely on the individual either, retirement experts have called for both government and the industry to step up.
“The government needs to make it easier for people to save for retirement,” said BlackRock’s head of retirement Tony Stenning. “There needs to be one person appointed to aid the journey – a pensions minister, an education minister, a minster for business; it is all too disjointed.”
Stenning was speaking at the Perils of Pensions debate hosted by Morningstar, joined on the panel by Nigel Aston, head of European defined contribution at State Street Global Advisors, who called for employers to up their ante.
“There needs to be better engagement in the workplace,” he said. “Compulsory saving is only one part of the puzzle, we need education too.”
When Should Pension Saving Begin?
Stenning called for an overhaul of the type of language used when discussing pensions, instead using terms already in everyday speech such as interest rate and savings.
But language is only part of the process. Fellow panel member Rob Gardner, founder and co-chief executive of Redington, explained how our financial habits are formed by the age of seven – leave financial education any later and you risk a lifetime of indebtedness. Gardner explained that the average Brit has a staggering £41,000 worth of debt – not including mortgage debt.
“We need to look at the bigger picture, talking about saving for retirement when so many people in Britain have significant credit card debt is futile,” he said. “There needs to be fundamental shift in the way people think about their money. At the moment millennials spend 2% more than they earn, every month. We need to make saving the first thing people do the day they get paid – not the afterthought at the end of the month.”
Gardner extolled the virtues of gamification, and nudge psychology to help draw people into retirement saving – and keep them in those pension plans.
“There are 33 million active gamers in the UK alone, and this powerful platform can be utilised to drive a solution to the pensions problem amongst a populace disinterested in saving,” he said. “Cancer Research UK now has a game that actually helps fight cancer as you play. This alongside peer comparison could be a very powerful tool.”
Is Technology the Solution to Adequate Pension Provision?
A study by financial education website Boring Money found that the majority of 35-44 year olds would prefer web-based, quick, solutions-focussed advice to a two hour-long face session with an adviser – even if the latter was free.
“The problem is, there is a difference between what people want to do – intention – and reality,” said panel member Dan Kemp, chief investment officer of Morningstar Invesment Management. “I want to work at a company with a great gym scheme, I do. But do I use that gym? No. People may say they prefer quick, online-only guidance – but does this ever lead to making real investment decisions which will provide for their futures?”
Kemp said that while he agreed with Gardner that technology had the power to engage a new generation, it ideally needed to be coupled with proper financial advice.
“Robo-advice should be used in conjunction with face to face advice, but if you are just going to use robo it has to be more than just an app that makes recommendations. It should be behavioural based, personalised to the individual and actionable – moving the individual forward through the savings and retirement arc.”
Kemp cited the success of HelloWallet in the US, which begins by focusing on financial wellness, debt repayment and building up cash savings before moving onto savings.
“The Goalposts Keep Getting Moved”
Stenning raised concerns with the linear nature of that approach – saying that in the UK, people often focused first on buying a house, then saving to afford children and their education, and by the time they got around to thinking about pensions it was too late to build up a sizable pot.
The panel members agreed that more needed to be done to encourage consumers to save for their retirement, but that individuals needed the support of the asset management industry, the government and employers in order for it to be a success.
