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Simon Kew on changing the culture of UK spending to saving

Writing in Financial News in August, Jackal’s Director of Pensions, Simon Kew, sets out his thoughts on how to help change the culture of the UK from spending to saving, through education and auto-enrolment.

The full article can be found here, on the Financial News website, but is copied below for convenience.

“Early start for pensions culture”

The UK government clearly believes changing the culture of pensions saving begins with a big stick – the great unsaved must be forced to put money away for their twilight years.

Politicians may not want to put it quite like that, but that is what is behind their auto-enrolment scheme, which starts in October, when the largest employers are obliged to offer a scheme to all staff for the first time. For smaller firms, the introduction of AE has been pushed further back. But timing isn’t the point.

As we have seen with the banking community, changing culture is a complex job. In pensions, convincing those, preoccupied with getting on with their lives, to plan how they will fund themselves in 40 years’ time is a massive psychological undertaking.

When I started work, I was told that a percentage of my salary would be taken away and put into a DB pension. I didn’t complain (much) and accepted it. If I had been given the option to keep that additional money, so I could spend it on wine, women and song, I probably would have done.

People returning to work after a career break or parental leave will be faced with the same choice.

Saving for retirement may be a great idea but an extra £50 a month could mean eating something other than beans on toast at the end of the month. Many may opt out of their workplace schemes.

Throw in the loss of the “job for life” culture and we also have a much more mobile workforce. They will potentially build up a plethora of small pots all over the place. Will they really want to keep track of that, or will they just opt out for simplicity?

The only way to create a successful savings culture, which has any longevity, is to influence people as early as possible – in the education system. Put saving on the curriculum, bring in engaging, pragmatic and positive industry professionals to provide support to the schools, colleges and universities and we begin to change the culture of the future workforce.

But that hasn’t been the political route. Auto-enrolment could have been the answer. By ensuring that the people who need to save are compelled to do so, the future burden could have been lifted. However, in its current guise, AE is unlikely to fulfil the very purpose for which it was created.

I mentioned the largest employers. These behemoths, with tens or hundreds of human resources staff, are already geared up to handle the transition to the new regime. Many of them will have been automatically signing up their new employees to the company pension scheme, be it defined benefit or defined contribution, for many years.

But the thunder that should now be heard in the distance – of tens of thousands of small and medium employers marching towards the AE horizon – remains faint.

In November, the coalition government announced a one-year delay for the smallest firms, meaning that AE will not fully take effect until 2018. Then, last month, the Department for Work & Pensions redefined the way it defines small employers. The likely effect is more firms will be considered “small” and pushed to a later timetable.

SMEs are where the pensions regulator has its most significant challenge and, some cynics may say, this is a contributing factor to the delays. But the regulator is faced with policing the biggest upheaval in pensions for generations. It can’t be easy.

In my view, this leads to the root of the problem. By focusing on those already in the workplace, almost any plan is doomed, if not to failure, then to a life of “what could have been”.

It is widely acknowledged that most people are not saving enough for their retirement. The taxpayer will be liable, through the state pension, for the huge cost of keeping these non-savers above the poverty line, unless something is done to address the issue. That action should not start when employees begin their first job.

Simon Kew – director of pensions at Jackal Advisory

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Category : Employer Covenant,Savants in the News — admin @ 5:41 pm August 7, 2012

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