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Pensions are still a luxury for most people

15 February 2021

By Shelly Durrant

If money grew on trees, pension pots will be bigger…

I automatically start to turn off when I hear the word ‘pensions’. Firstly, I don’t have any spare money to put into my retirement pot, and secondly, where would I even begin? It’s not the sexiest of areas.  

Having spent my corporate communications career working with financial advisers and pension providers, I know myself the importance of putting money aside for my retirement. Some of you savvy FS sector professionals reading this are probably well-aware of the 10% rule (putting aside a tenth of your earnings towards savings and investments).

However, like everyone else in their 30’s, my household budget is stretched. After paying out for my mortgage and household bills, plus childcare costs, it doesn’t leave much money to put aside for my pension. And any money I do have left, I don’t want to put into something that I can’t access till I’m 55 because who knows what curve balls life is going to throw at me between now and then.

I recently joined a webinar ‘A living pension’ hosted by the Resolution Foundation and wasn’t surprised to hear the ‘pension’ conversation hasn’t moved on in at least 10, 15 even 20 years.

There is no doubt that people need to secure a greater level of retirement income than the previous generations of retirees, but how does one realistically enhance their pension savings? Given we’ve spent nearly 12 months in a pandemic with household incomes (particularly parental ones) squeezed due to furlough or redundancies, putting money aside for a pension pot that you can’t access till your 55, is not necessarily at the  top of people’s priority list.

To be frank, pensions isn’t on the radar for those in their 20’s. For some, they are already saddled with university debt and their financial goal is to save enough to enable them to get on the property ladder. Those in their 30’s have liabilities like mortgages and rent to pay, in addition to childcare costs; often their second biggest outgoing after a mortgage. Meanwhile those in their 40’s and 50’s will be panicking as it dawns on them that their pension pot isn’t enough to see them through retirement, but their household budgets still remain stretched. This is paired with the looming task of how they can financially support their children, be it with university costs or a deposit for a house. We are living in times where discretionary income is nearly becoming a myth.

So, how do we stop people sleep-walking into a pension disaster? There is no quick fix or solution, but the government and industry need to act expediently, and decisively (enough with the Government Consultations and Reviews!). The introduction of auto enrolment in 2012 provided a great starting point but it’s left us with a group of people who are under the assumption that auto enrolment will provide them with a comfortable pension which couldn’t be further from the truth.

The industry needs to firstly look at the products on offer and look to provide a better choice offering better capabilities that help to support a rainy-day savings account. Interest rates are depressingly low with cash ISAs unable to provide the returns they once did. There’s also remains a sizeable elephant in the room - how do we make pensions simpler to understand? Let’s be honest,very few people have the time on a Sunday morning to research the difference between an annuity and a SIPP, or the difference between active and passive funds.

The Pension Schemes Act, which received Royal Assent last week (ie became law) contains a number of laudable reforms to the pension landscape. However, much of the focus of this legislation is on defined benefit (DB) schemes, which are now largely the preserve of older workers. There remains a lot for the government and industry to do in order to tackle the issue of getting younger people to save more into their pension pots. One place we should start with is schools. There needs to be better financial education, we need to raise awareness and understanding of debt and expenditure and how to make your savings last.