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Mel Kenny: Battle against financial short-termism is only just beginning

The latest round of increases to pension contributions under auto-enrolment has been welcomed by those whose employers have implemented it well, both in terms of the level of contributions and the communication of it.

Most of us do need a nudge to save and when our employer is seen to be looking out for our future too, it just feels better. And feeling better together gets those dopamine levels flying.

As an adviser, it has been great to hear these good news stories. All too often, employers can get it wrong and you just want to close your ears to the mass moaning and groaning.

The battle between the haves and have-nots finds it all too easy to rise to the surface when there is a feeling an employer is doing sufficiently well not to be troubled by, and grumble about, a 3 or 4 per cent contribution. In comparison, employers in Australia are already having to contribute 9.5 per cent, rising to 10 per cent in 2021 and 12 per cent in 2025.

However, while the increases seen here have given a natural opportunity for the masses to pause for thought and reassess their contribution to their own future, this does not last long before they get back to their everyday pressing matters and vices.

One such vice is gambling, which has so many in its grip. It is troubling to see just how prevalent among younger people it is. I co-manage an amateur football team and see a lot of gambling going on. The approval-seeking screenshots and the oh-so-nearly tales on the group WhatsApp no doubt hide anguish and troubles elsewhere.

Such behaviour by players and fans alike is hardly a surprise, given the betting industry’s dominance in football sponsorship.

It is far easier to divert cash into a dopamine-enhancing string of bets in the hope of instant returns than to allocate the money to something sensible like a higher employee pension contribution.

That quick flutter might give a little warmth to the individual but it fuels the flames of even more sponsorship deals. It is one worrying example of short-termism that the long-term insurance and savings industry is up against.

So as boring as it may sound in comparison, positive success stories of nudging money into future wellbeing are satisfying to hear.

Yet there is a clear need for even greater engagement. The dinosaurs that continue to focus on shareholder returns in the first instance have little to brag about outside of the annual general meeting, compared with those great companies that have evolved and can now happily blow their trumpet on handing back profits to their members too.

I suspect, in due course, we will follow Australia’s lead, because both the trial of gradually upping the obligations of employers and the opportunities to have regular reassessments appear to have been a success on the whole.

However, it is also time for the dinosaur insurance and savings providers to evolve, in order to attract more attention from a big, distracted audience.

Mel Kenny is a chartered financial planner at Radcliffe & Newlands

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. If the battle against financial short termism is to be won, then presumably the latest MIFID rules will be ditched and valuations will be provided bi-annually.

  2. Trevor Harrington 14th May 2019 at 5:08 pm

    The trouble is that the public in the UK have been educated by experience into not trusting long termism.

    In the concept of long termism, it was taught that you should trust the Government to provide health care, long term care, and of course a half decent state pension, all of which have now been “legislated away” from us.

    My wife has had six years of state pension legislated away from her, and her residual state pension, due to be received in 4 years time is about 1/3rd short of what it was originally forecasted at (including SERPS).

    She also has to buy personally a lot of her basic medical requirements for her diabetes (she has been a diabetic for 40 years), whereas apparently she could have a sex change free of charge, along with our grandchildren.

    My own state pension is again 2/3rds of previous forecasts, and I have to wait until age 66 to get it.

    I have been a higher rate tax payer for most of my life, and feel that I have very much contributed my fair share.

    However, one piece of long term planning did work rather well, in as much that we chose to educate both our children privately, and not only can they both read and write (apparently 20% of the school leavers cannot do so – and I can assure you they are not the privately educated ones), but they both have careers, and are nudging higher rates of tax themselves. Incidentally, I did not get a refund of my tax and national insurance which should have gone towards their state education which they obviously did not receive.

    Now then, do please tell me more about the success of these auto enrolment pension thingies, because I am sure that they will be an equally rewarding success for the lucky participants. Well, I am sure they will be until the Government decides that they want some of the money back from everyone’s pension fund because they want to spend it on something else.

    Oh … I forgot, Mr Corbyn has already signalled how he is going to do that – by stealing 50% of everybody’s water and electricity company shares through “nationalisation”, which basically means they will be stealing it from everybody’s pension funds (including AE funds).

    I guess he must have learnt that little trick from Gordon Brown who was elected with the Labour Party in 1997 on a no tax increase manifesto, and then promptly started taxing pension funds within two months of coming to power. In so doing he decimated private pensions, and loaded the final straw which broke the camels back of company final salary schemes.

    Well, I think I will continue advising clients to spread their investments between all forms of investment including pensions, property, ISAs, stock markets, inside trusts and outside of trusts, and simply hope that future Governments do not manage to destroy everything – long and short term – unless of course you can tell me that I am being silly …?

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