The UK is “sleepwalking towards real pension problems,” according to the Pensions Commission, which warns that millions remain on course to undersave for retirement despite the success of automatic enrolment. Ahmed Bawa, CEO of Rosemount Financial Solutions (IFA), says the findings underline the need for advisers to have more direct conversations with clients about retirement adequacy.
We are sleepwalking towards real pension problems in the UK. That’s the warning from the Pensions Commission, which recently published an interim report into the state of our savings. And the message was clear – while the success of automatic enrolment means millions more people are now saving into pensions than they were a decade ago, just getting started isn’t enough – we need to be saving more.
According to the Commission, around 15 million people are currently undersaving for retirement, a figure that could rise to 19 million without action, with low and middle earners particularly exposed. Women, carers and the self-employed also continue to face significant barriers to building a pension pot which will actually last through retirement.
The easy thing to do at this point would be to pass the buck to the authorities, and hope that future reforms will deliver some sort of solution. And while there is an important role for government and regulators to play in shaping a pension system that reflects modern working lives, advisers are in a unique position to make a meaningful difference right now.
Making retirement feel real
One of the biggest obstacles is that retirement can feel incredibly distant for many clients. When someone is focused on managing a mortgage or getting started with investing, bumping up their pension contributions doesn’t always feel like an immediate priority. They won’t feel the benefits for decades, but in the meantime there are very real financial pressures in the here and now.
Advisers will be used to these objections. Rather than focusing purely on contribution levels or pension projections, we need to help clients visualise what retirement actually looks like. What age do they hope to stop working? What sort of lifestyle do they want to enjoy? Will they want the freedom to travel, support their family or pursue new interests?
Framing the conversation around life goals rather than financial products can help to make retirement planning feel much more relevant and engaging.
Reaching those at greatest risk
The findings around self-employed workers are particularly concerning. The Commission found that only 4% of wholly self-employed individuals are actively saving for retirement, with participation rates even lower among younger self-employed people.
While employees have the structure and ease that come from the automatic enrolment scheme, self-employed workers are on their own. As a result, pension saving is often pushed down the priority list and left until some imaginary future when people suddenly have excess income and don’t know what else to do with it.
This is where advisers need to step in. By working closely with self-employed clients and helping them establish manageable, sustainable contribution strategies, advisers can create the sort of structure that may otherwise be missing. Regular reviews become especially valuable, opening up the potential to adapt pension saving plans as and when possible.
Women and carers also face unique challenges when it comes to retirement provision, often due to career breaks or periods of reduced earnings. Advisers can play an important role in helping these clients understand the long-term impact of those gaps and identifying practical ways to strengthen retirement outcomes over time.
Having better conversations
Equally important is ensuring that advisers are willing to have honest conversations with clients about potential retirement shortfalls. As with discussions around protection, inheritance planning or later-life care, these are not always easy topics to raise. Some clients may assume that minimum automatic enrolment contributions will be sufficient, while others may believe they have plenty of time to address any gaps later in life.
The reality is that many people underestimate how much they will need in retirement and overestimate how easy it will be to make up lost ground in later years. Helping clients understand that reality is not about creating fear, but ensuring they have the information they need to make informed decisions while there is still time to benefit from the power of long-term saving and investment growth.
Helping clients save enough, not just save
Automatic enrolment has undoubtedly been a success in helping people across the UK to make a start on building pensions, but that’s all it is – a start. As the Pensions Commission’s findings show, there is a real danger of complacently relying on those minimum contributions to do the work, leaving an awful lot of people at risk of an unpleasant surprise when they finally retire.
Through realistic conversations we can ensure that our clients understand what they are on course for, and how even modest increases today can result in dramatic improvements in their level of comfort in later life.
But just as clients can’t put off pension saving for another day, neither can advisers delay having these conversations, uncomfortable as they might be.
