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Nic Cicutti: Start young to win the battle against pensions apathy

There are positive signs we will prepare people better for retirement in the future

Last week, a relative of ours asked me to give “financial advice” to her daughter who has come into a sizeable – if not life changing – five-figure sum via an inheritance.

After all the caveats about not being an adviser, along with recommendations as to how she could go about finding one, I suggested that setting up some sort of private pension provision for her newborn baby might be one idea worth discussing with whoever she chose to advise her.

We all know the benefits of compound interest: a single contribution of £3,600 (£2,880 after tax relief) into a pension pot could grow to almost £40,000 by the time they reach the age of 60, assuming compound annual growth of 4 per cent per year after charges.

Double up on that strategy over two recurring tax years and your child will have a sizeable lump sum so they can access a decent income from long after you have shuffled off this mortal coil.

I was thinking about this informal suggestion last week after reading the FCA’s most recent data bulletin, reporting on the evolution of the pensions market.

Alongside other market data, the issue looks at information from the regulator’s October 2017 Financial Lives Survey.

The report makes for grim reading. Almost a third (31 per cent) of all UK adults have no private pension provision to tide them over in old age, four out of five have not given thought to how much they should be sticking into their pensions and three quarters have not even considered how they will manage when they retire.

This level of ignorance continues among those who are paying into defined contribution schemes: 71 per cent have no idea of the level of charges they are paying on their pensions. Strikingly, almost a third of those saving into a DC scheme do not know how much their pension is actually worth.

Perhaps more significant is the gender imbalance that emerges from the FCA’s survey: almost six in 10 (59 per cent) of those without private pension provision are women. Just over half of retired women say that the state pension is their main source of retirement income, compared to a third of retired men.

It is dangerous, of course, to read different sets of figures alongside each other, but I could not help comparing this data bulletin with findings from the separate non-advised pension sales review, also published recently by the FCA.

This too found a worrying level of ignorance among people approaching the point where they can access their savings pots as a result of the pension freedoms introduced in 2015.

The survey found that, before the freedoms, only 5 per cent of the comparatively small number of drawdown sales were made without a customer receiving advice. Today, with drawdown sales now twice that of annuity sales, 37 per cent are made without advice.

Perhaps unsurprisingly, those who were instrumental in promoting unfettered access to pension savers’ tax-free cash by reference to buying Lamborghinis with it are now eager to stress how keen they are to ensure those savers receive the information they need to make the right decision.

For example, a press release from former pensions minister Steve Webb, now director of policy at Royal London, said in response to the FCA figures: “Royal London has recently developed information packs to be sent to people five years before retirement to help to address this issue and we hope that other providers will follow suit.”

Yet the regulator itself points out the evidence is that “customers do not always read this information when they access their pension savings”.

Is there any glimmer of light ahead? To paraphrase the great British writer of the 1930s and 40s George Orwell: if there is hope, it lies with young people.

The FCA suggests that there are some signs auto-enrolment is increasing pension take-up rates among lower age groups. Its survey found that three out of 10 18-to-24-year-olds now have a pension.

A quarter of this age are now saving into a DC scheme. Almost half of 25 to 34-year-olds hold a DC pension scheme.

To be sure, the sums involved are not great.

Three in five of those in the 18 to 24 age bracket who are saving into a DC scheme say they have less than £5,000 in their pot. Half of those aged 25 to 34 say their pension pot is worth under £10,000.

But, as the FCA points out, this reflects the relative immaturity of the UK auto-enrolment market. Compound interest, as we know, will boost those sums. Also, from the start of this month, joint employer and staff minimum contribution levels into workplace pensions rose from 2 per cent to 5 per cent, increasing further to 8 per cent next April.

This will, of course, impact take-home pay and will not be popular with all employees. But at least it gives the opportunity for savings to build up over the next 30-40 years, preventing the level of unpreparedness for retirement we see today.

It may not be much to hold on to but, in an otherwise grim set of findings from the FCA, it is probably the best we can hope for.

Nic Cicutti can be contacted at



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There are 9 comments at the moment, we would love to hear your opinion too.

  1. Trevor Harrington 9th April 2018 at 2:46 pm

    Afternoon Nic,

    I can concur with your figures for the young person’s pension contribution, and your continuing encouragement to the public at large to contribute to pensions.

    Indeed, as we pass through to Grandparents, it is a worthwhile consideration to pay the annual minimum figure to pension planning, at least once, for each grandchild, and regardless of whether the contribution is part of ones annual gift exemption, or a Potentially Exempt Transfer (PET).

    However, I think we should not lose sight of the huge inequalities of pension costs within the public sector, notably the absolutely enormous employer contribution, which has created the budget deficit, and the huge national debt.

    If you drill down into the figures, it is not uncommon for local authorities to be paying anything around 30% of salary into pensions (that is 30% of salary – not 18% of budget). Quite obviously this is completely unaffordable, and indeed it is probably the single factor which has caused the fifth largest economy in the World to be unable to afford proper care for the aged, let alone empty the dustbins.

    I would dearly love a Journalist like you to really get hold of this, investigate it properly, and start asking the establishment pension millionaires at the top of our councils, the right questions when given the opportunity.

    I note from yesterdays Sunday press, that we now have over 500 Councillors in the UK who are earning more than our Prime Minister. Can you even begin to imagine what the cost of employer (the tax payer) contributions are to their pensions, especially since, where we used to have five Councillors, it seems that we now have anything over ten or even fifteen.

    I think you will find that the ongoing early retirements, fake and fraudulent ill health early retirements (incidentally, at full prospective service), “off the books special pension contributions”, and voluntary early pensions before age 65, are indeed the route cause of the majority of our national debt, and the creator of austerity.

    These are your current day wealthy who exercise unfair financial advantage, and end up stealing from the lower paid, rather than the “big bosses” of Edwardian times.

    Perhaps this could be a more fruitful crusade for you Nic … if you still have the energy and ambition which you used to have.

    Kind regards


    • Trevor Harrington 9th April 2018 at 2:55 pm

      Incidentally Nic, I should also have said that the reasons for the recent huge reductions in state pension, have their cause in very much the same place.

      try telling the ladies that their state pension has been pushed out from age 60 to age 67, and reduced virtually in half (loss of SERPS benefit), whilst their national insurance contributions have remained at their current inflated rates …. because … the fat cats in the public sector have given the money to themselves … for their own pensions ….

      If you are tempted to tell the ladies this … you will need to run away very quickly … immediately after doing so …


  2. Robert Milligan 9th April 2018 at 3:49 pm

    This whole article is so wrong I have never so fundamentally disagreed with you, there will far more calls on that money before any child gets to it,in forty years!!!,,so so wrong, happy to discuss in the open,

  3. An interesting article

    Where do you think younger people will be finding the cash to invest in pensions.

    The Uk as a whole has the lowest level of personal savings just about anywhere at 1.7% of income (Germans 16%, Chinese 35%).

    For younger people in the Uk, many have a student loan, growing numbers of home renters are paying an average 40% of their income in rent (70% London), for those aspiring to buy a home are saving an average 14 years for a deposit, with longer borrowing periods-35 year mortgages now commonplace, with bank of Mum and Dad now the 9th largest mortgage lender. Increasing levels of consumer debt including those that purchase a car, 88% buy on finance.

    Then factor in 24% of the working population earning less than living wage, 49% of the growing numbers of self employed classified as low paid, and I wonder where people are expected to find money to save.

  4. I think for planners whov’e been doing oit for over 30 years & in their 50s like me there is apaty and it seems too big a gap to bridge. Talking of gpas – the X and Y generations and Millennials are also victims of the ‘advice gap’ as I’d rather speak to their parents and grandparents. At least many of them know the difference between a stock and bond (and can afford the advice). X/Y and M’s should be loading up 100% in equities for their 40 year+ investment journey – but no one has explained to them at school how capital markets work.
    This is where technology has a big part to play. Mind you, ‘I Plymouth’ has a good point – if there is no disposable income then there is no disposable income.

  5. Excuse typos

  6. Trevor Harrington 10th April 2018 at 10:26 am

    As the fifth largest economy in the World (some would say the second largest – but that is another subject), and with one of the most penal tax systems in the World, I can assure you all that there is more than sufficient money coming into the treasury for us to afford ALL the things that we might reasonably want.

    It is a simple fact that all that is happening is that we are spending it in the wrong places.

    The massive pensions at the top of the public sector, and the huge costs that are placed on us as tax payers, is probably the single most important contributory factor to our current national indebtedness, and the budget deficit.

    The loading of debt onto students in our further education systems, in preference to allowing the pubic sector to retire before age 65, take early retirements, award themselves fake and fraudulent early retirements through supposed ill health, and index linked pensions, let alone the special contributions to higher paid public sector employees (who we do not actually need) ….. is not just a simple a scandal, but is most certainly a financial horror story that we as a society will have to deal with sooner or later.

    • suggests that the UK’s tax regime isn’t amongst the world’s harshest.

      • Trevor Harrington 12th April 2018 at 10:03 am

        Morning Julian,

        The point is that the size of our economy, and the tax revenue from it, is huge, and more than enough to afford all the cervices and benefits that we could reasonably require.

        The issue is that our tax revenue is being spent in the wrong places.

        One simple example, in the form of a question :-

        If really successful employers in the private sector can only afford to pay 8/10% of salary into their company pensions for their employees, is it fair that we now employ anything up to 15 Councillors in our councils, where previously only five were sufficient, over 500 of them throughput the country are being paid more than the Prime Minister (considerably more), and as a result, the employer contribution (us) to the Council pension funds regularly exceeds 25% of salary ?

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