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Where next for workplace savings – 5 observations from an expert non-expert

So what is an expert non-expert? Broadly, me!

I am an industry old boy of nearly 26 years, have passed more exams than I am able (or care) to count, and a passionate believer in the financial imperative of a good workplace retirement savings scheme. I am not, however, an investment manager (expert), a pension trustee (should be experts but often aren’t) or an actuary (big expert, big brain and sometimes matching socks).

I am an avid reader of all developments in the world of retirement savings, and a passionate defender of the need for excellence in relation to the delivery of financial education in the workplace.

Here are my five observations:

1. Pensions are not dead! 

There is a little territorial angst towards the lifetime ISA from some within the pensions industry. But how people save for retirement isn’t the issue; the big challenge is getting them to save enough. In reality, I try not to use the p-word. In fact, I am happy to make a case for it to be killed off. Its very usage is often akin to being doused in iced water – unpleasant and generally unpopular.

2. 8% or 12% auto-enrolment?

The debate hots up as we consider where next for auto-enrolment maximum levels and how much you actually need to save each year for retirement. Some say ‘don’t tell people 8% of their salary isn’t enough or they just won’t bother!’ But 8% is unlikely to be enough, especially for the next generation that will have triple-unlocked state retirement offerings and not even a sniff of a legacy final salary scheme. The answer is almost definitely north of 10%, although it should be tempered by ‘but as much as you can afford, given your other financial commitments’.

3. Employers should do more 

Before auto-enrolment, good employers typically seemed happy to match employee contributions up to around 6% of salary, producing a total of 12%. This seems like a good number – and the employee benefits from at least basic rate tax relief (as an aside, ALL employees should get this, even those earning below the threshold in trust-based schemes). This means that a good retirement income costs a typical employee 4.8% of their salary each year. Based on an average UK salary of £24,000, this will cost the employee £96 a month. I know people who pay more for Sky TV!

4. Unfunded lunacy

There is no denying that unfunded schemes (like the police, the army and the NHS) cost UK taxpayers way too much. Do I love the dedicated people who do these jobs? Unquestionably yes! Do I want them to be financially well-looked after? Yes. But do I want this and future generations paying for their superannuation schemes? No. I don’t know the answer (a non-expert moment), but there must be one!

5. Gender differentiation sucks 

Nobody has been foolish enough to make me a CEO, but if I was one, I would instantly equalise pay. Women’s ability to save as much as men do for retirement is hugely hampered by their unequal pay. Add that to the age equalisation shenanigans, that quite rightly enrages the brave equality campaigners, and it paints a world I don’t really like. However, in a society where the heroines of today are often referred to in relation to their beauty or are photographed in a hugely sexualised way, is it really a surprise?

Give this non-expert a magic wand that can eradicate these issues and we will be in a retirement savings world I like the look of.

This article was first published with REBA on 8 December 2016.

 

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