Financial responsibility seems to have taken a back seat in today’s “must have” culture. British household debt has more than quadrupled since 1990 in step with the rise in credit card spending. In that light, the financial freedoms granted to pensioners from April are a concern.
If the legislation is to have its desired impact, we should also be introducing money management skills classes, to schools and workplaces. If we do not, we face a future in which retirees don’t have the financial means to retire while others might even sue former employers for a lack of guidance.
The most obvious time to start teaching people about saving is during their childhood, as early as primary school. Teaching children money sense while they are still learning about counting will instil good behaviours for their future. Old habits tend to die hard, after all.
Back when I was at school, you would often hear the phase “a stitch in time saves nine”. You don’t seem to hear this anymore. Nor, do you see subliminal messages about saving in homework questions. As the father of a six-year old boy, I should know.
We cannot rely on people to incentivise themselves, let alone their children, to save. It’s not happening now, despite the media repeatedly telling us that we should be. That’s why it makes sense for money management and financial education to form a part of the national curriculum. Arguably, these life skills are just as important as any other lesson on the school timetable.
Auto-enrolment has gone some way to encourage saving, but it needs to go further still. Otherwise we risk becoming a society totally reliant on the state. Just recently The Financial Times reported that pensioners need £215 a week to cover the basics (such as food, travel and heating bills). Worryingly, this is almost double the basic state pension.
Because of this, there will probably come a time when the government will have no choice but to up the default auto-enrolment contribution rate and automatically enforce rates depending on salary.
The responsibility can’t just be on the public sector’s shoulders, though. With new pension legislation changes just around the corner, companies should be making much more of an effort to educate their workforces about the importance of saving for the future.
But many employers seem to be sitting on the fence, perhaps in the vain hope that someone else will explain the changes, or that if we have a change of government, all of what comes into effect on April 6 could be reversed in May.
What companies could be failing to anticipate are disgruntled former employees who might be suing them ten years down the line, because of a perceived failure to provide enough clarity around the impact of the legislation.
Bombarding your employees with information is not the answer, either. Given the complexity of the changes, I do not think we can trust individuals to go away and fully make sense of the options themselves. It’s difficult enough for someone in the pensions industry.
The only answer is education. This is the only way companies will get through to their employees; by putting the options into a more personable, relatable context. If not, we risk millions of people signing away their golden years to the simplest pension product because it was easiest to understand, or more worryingly, becoming so disillusioned that they choose to opt-out of a scheme entirely. What then? As we learnt in school, “prevention is better than cure”.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.