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Phil Young: Change the record on pension saving lectures

Constantly telling people they are not saving enough will breed resentment and cynicism. We need a fresh approach

I winced when I read Royal London’s latest press release: “Will we ever summit the pension mountain?” it asked.

As well intended as it will have been, it carries the same, miserable, finger-wagging message so many pension companies have used in recent years: “You aren’t saving enough.”

Fear has a proven sales record. Like using the word “new”, it has reliably delivered results for marketeers for decades, if not centuries. Fear is both the opposite and the seed germ of desire.

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However, like a child who has been constantly shouted at, people eventually become numb to it when the volume never changes. I think we have reached this point with savings and pensions, so I would politely ask for all the financial marketing departments to change the record.

If you do not, I will be forced to pay for prominently-positioned billboard space and use it to bring the following three points to the public’s attention.

  1. Hypocrisy: Many, if not most, of the people working for large pension companies have never consciously saved a penny into their own pensions. Their employer has built up a defined salary pot for them and while they will tell you they sacrificed greater wages in return for these pension contributions, their annual salaries would suggest otherwise. Put it to the test and ask how much they earn. A typical broker consultant working 20-plus years for a life and pensions company will have over £1m in their pension pot, and may have been offered a huge lump sum to transfer out. You imagine society would survive if this occupation ceased to exist. Certainly, your own pensions charges might be lower. Worth remembering the next time one of them lectures you about saving money.

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  2. Some of you are saving enough: I have been showing people a video Mercer used for employees in a group scheme recently. You can find an example on YouTube and I will bet it is much better than the information currently issued by your own pensions company. Sixty-five per cent of people who were sent the video watched it and 45 per cent of those took action by chipping in more to their pension. These things are not hugely expensive to produce and can be batched up and sent en masse or viewed on demand. While they might not be a complete substitute for the tedious regulatory requirements for illustrations, they are easy to understand and act on. Instead of telling people they are not saving enough and inviting them to look at some meaningless macro analysis, they are personalised and tell them how much they have, what the shortfall is and what to do about it. There is no finger-wagging but there is a realistic and actionable solution, which seems to work. Your pensions company will talk about their “digital first strategy” and ambitions to become the next Amazon, but it is likely their staff are using an older, less powerful computer than you have at home. Ask them to show it to you. The Berlin Wall was still standing when it was made. Whistle the intro to Winds of Change while it slowly boots up to add to the Cold War ambience. At the same time, they spend colossal amounts of money on failed IT projects and something called “re-platforming” at a price which strongly suggests gross incompetence. Worth remembering the next time one of them lectures you about saving money.

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  3. All of you seem to be saving more than enough: Pretty much every pensions firm has been comfortably hitting their sales targets in recent years, and most have overshot them by miles. You could conclude that the good people of the UK are saving more than enough for their retirement. In reality, much of this is existing money circulating around the system. Since pension freedoms and choice was announced, a lot of this money came from defined benefit pension schemes, which is money already invested in a pension. You might think that pension companies, so very concerned about increasing the amount of savings in the UK, would be rewarding themselves and their staff for new savings rather than simply money moved from one pension company to another. After all, how would simply moving already invested wealth from people who have already saved enough close the savings gap? But no. Most of these businesses not only pay out bonuses on all money coming in, they primarily target existing large pension pots and actively look to take money off competitors rather than grow the pensions market as a whole. Worth remembering the next time one of them lectures you about saving money.

Many of the people working for large pension companies have never saved a penny into their own pensions

Of course, there is lots of work pension companies do to improve savings in the UK, but constantly telling people they are not saving, and in many cases cannot save, enough will breed resentment and cynicism in the way I have described above.

I might have laced it with more detail than most people will understand but I think the sentiment is well understood. Worth remembering the next time you lecture anyone about saving money.

Phil Young is managing director of Zero Support

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 25th June 2018 at 3:12 pm

    I try to avoid lecturing clients about how they need to save more (even though the vast majority of them do). Rather, I tell them the sort of fund they’re likely to need to accumulate to provide them with an adequate retirement income.

    Based on a notional annuity rate of about 5% p.a. for a male aged 65 who wants to add a reasonable widow’s pension as well, a pension of £20,000 p.a. is likely to require a fund of about £400,000.

    For someone around the age of 40 with pension funds amounting to less than £100,000 (and sometimes alarmingly less), that can be a bit unsettling. But it focusses the mind and often leads on to a discussion about how to get there, which may well not be just about putting more money in. A more adventurous investment approach will almost certainly help instead of defaulting to cautious funds primarily due to lack of understanding of the relationship between risk and reward and that a 20% fall in the value of your portfolio really isn’t a very big deal 20 years from retirement.

    I agree that simply telling clients they need to put more money in carries with it a whiff of self interest. But tell them what they need to be aiming for over the long term and how what may seem like an intimidatingly high mountain to climb is in fact do-able raises instead the questions: How can I get there and will you be there to hold my hand along the way?

  2. “I might have laced it with more detail than most people will understand”.

    No, but I need to paint a room and your really broad brush would be a great help!

  3. Thanks for a great article Phil. Most of us do as we are asked by our employers, it makes sense to talk with employers about their reward strategy. In my recent experience reward and HR teams are downgrading pensions in favour of concepts such as financial wellness which afford them the sense they are at the cutting edge while costing the management and shareholders very little. While we are being sold the idea that financial wellbeing is at the heart of the employee value proposition, the material things – pension contributions, salary and so on get minimal attention. Complicit in this are the army of snake oil salesmen purporting to be employee benefit consultants. Let’s say it like it is, employee benefits start and with pensions, the rest comes second.

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