You would have thought that all the time and money poured into encouraging younger people to save for retirement would, by now, have them dutifully tucking away money like a squirrel hoarding its nuts (if you’ll excuse the simile).
Well, maybe some are. But it is estimated that almost a half of all 22 to 29-year-olds will opt out of their workplace pensions next year, with even more following as their contributions increase to five percent of salary in 2019. So all those ‘We’re In’ TV campaigns are hardly an ocean-going success.
Ken Tymms, founder of workplace pension specialists Kent Pension Services recently told me: “The younger generation is not stupid. They will get the importance of pension planning if someone explains the issues. Trouble is, nobody is telling them.
“Unfortunately auto enrolment is seen by most employers as simply a compliance issue, and The Pensions Regulator has done very little to stimulate a more benefit orientated approach.
“It was always the intention of the Pension Commission (which gave birth to auto enrolment) that the relationship between employers and staff would promote the need to save for the long term, but there is no evidence that that is really happening.”
A State Pension – but not as we know it
Meanwhile, the government has announced the qualifying age for the State Pension will rise to 68 by 2037, and it’s a racing certainty this will increase even further.
If, of course, the State Pension exists in its current form by then. And that’s a big If. There are plenty of commentators who believe that in 20 years’ time the State Pension will be means tested, and reserved for the poorest in society (although current levels of £8,000 a year will ensure they remain poor).
So on the face of it, there are plenty of opportunities for IFAs to connect with anyone younger, than, say 45, and show them the benefits of putting some money aside regularly in an attractive, inexpensive, pension plan. Even that will be as easy as juggling soot.
What with saving for a property, or paying a mortgage; putting food on the table and raising kids; and then spending a proportion of their income on simply having a good time (and who can quibble with that?), most sub-45s haven’t a dog’s chance of putting anything sensible aside for retirement, unaware of how quickly later life will creep up on them and leave a huge financial gap with precious little to fill it. It’s a serious problem that’s for sure.
I’m quite sure every politician in the land, if asked about their views on future pension arrangements, would feel as if they were on the deck of the Titanic, with the iceberg looming closer.
Transferring out of DB schemes
But considering MPs and many public sector employees are in guaranteed, index-linked, gold-plated “I’m All Right Jack” pension schemes (just ignore for the moment that they are entirely unfunded), it’s a thorny issue which won’t affect them personally. So re-arrange the following into a well known phrase or saying: “long grass”, “into the”, “kick it”.
There are, of course, some in the private sector lucky enough to be in company defined-benefit pension schemes. Unbelievably, and as many advisers will know from first-hand experience, some employees or former employees have transferred out of these, under pension freedom rules, and are sticking their money into plans with greater flexibility in order to benefit from ostensibly higher returns.
That seems to me to be the equivalent of not just looking the gift horse in the mouth, but smacking it in the kisser as well. It is certainly not without risk.
The FT reports that companies keen to reduce their pension liabilities, are wooing final salary scheme members with transfer offers of 50 times their projected annual income – several million quid in the case of very senior executives.
An estimated £50bn has been pulled out of these increasingly rare company pension schemes, and the FCA has finally come lumbering over the hill to warn against the risk to clients’ transferred money.
So, on the one hand you have those for whom their employers will provide some kind of pension when they retire, others who are nicely sorted with gold-plated schemes – and the rest of us, faced with a whole world of uncertainty. The need for sound financial advice has never been greater and it is needed very urgently indeed.