With the Christmas festivities firmly behind us, the industry is counting down the days to the Budget in March and the eagerly awaited announcement that may change the shape of retirement planning forever.
It was from the festive period a lesson was learned, which made me wonder just how far ahead the Government will be looking when it announces the outcomes of its “incentives to save” consultation.
The lesson followed a discussion with an extended family member of mine who has recently changed jobs. He is two years out of university, with student debt, a young family, a banger of a vehicle and a rented two-bedroom box. His new job resulted in a pay rise and almost simultaneous offer of entry to his employer’s automatic enrolment scheme, which he opted out of as he could not afford the reduction in takehome pay.
Now, do not get me wrong, I appreciate the position of this generation and am thankful I am not among them. However, he then went on to explain he was off to the sales the following day as he had his eye on a 50-inch television reduced by 50 per cent to a very attractive £600. This was to be put on finance and paid for “when he can afford it”. The deal was too good he did not want to miss out, he said.
Thinking Christmas gatherings are not a good place to lecture on financial planning I said nothing further. But it was a clear example of short-term thinking. For the record, this chap is not stupid – he has a very good degree in computing – but it is clear as far as financial nous is concerned he is almost as naïve as his nine-month-old daughter.
This is where I think the Government has really missed a trick. The first message is clear. In terms of incentivising retirement saving, the younger generation look for the short-term gains. This to me should signal the retention of the exempt-exempt-taxed regime and kill dead the notion of a switch away to a taxed-exempt-exempt environment. The promise of something good now is far more attractive than the promise of something so far in the future it will probably be discounted from the thought process.
The second message is also clear. The education system has failed and is failing the younger generations when it comes to being financially aware. Other than curriculum subjects that include some form of business studies (which themselves focus very little on personal finance) there is nothing in secondary or further education to prepare newly qualified adults for the reality of the early years of working life.
The Government’s attempts at education to date have been of limited success. Figures released at the end of last year suggested each Pension Wise interview has cost around £500. Money hardly well spent. I was also at a loss to identify how a large fluffy monster called Workie related in any way to auto-enrolment or the need to understand the importance of retirement planning.
The whole message of the campaign was simply not to ignore the workplace pension. Perhaps a pensioner wrapped in blankets in a darkened room would better bring home the realities of failure to take advantage of the incentives currently available.
The spring Budget is therefore an opportunity to announce a longer-term view; an investment into the future by way of a curriculum-based educational programme. This state-funded initiative would be money better spent on providing a fundamental understanding of personal finance to the next and future generations.
It is an investment into the future, as better educated individuals would be starting from a higher level of knowledge, meaning less time providing education on the basics by advisers, one would hope a corresponding reduction in need of burdensome regulation and fewer people caught out by scammers who play on financial naivety.
It might also be an opportunity for retired advisers to pass on some of their generic knowledge to the students.
This would be a signal of long-term intent; an attempt to diffuse the slowly ticking time bomb that lack of savings and increasing mortality have set running. This would be a step towards sustainability of a savings culture. My fear, however, is that the short-term need to balance the deficit may prevail and, instead of diffusing it, the countdown clock may be wound forward.
Martin Tilley is director of technical services at Dentons Pension Management