Emerging from Osborne’s somewhat underwhelming Autumn Statement last month, the rise in state pension age to 68 being moved forward was heralded as the key announcement by many – an announcement praised by some and derided by others. The changes mean the state pension age will be raised to 66 for men by as early as 2016, followed by a rise to 68 being brought forward from 2046 to sometime in the 2030s. The changes, it has been reported, will affect people now in their 40s or younger.
But is it really news at all, and does it even matter? Whether the retirement age is 68, 78 or 108, the fact remains that many people aren’t saving enough or sensibly enough to retire comfortably at any age. We urgently need a revolution in financial education and levels of saving to ensure people are able to retire at all. And this revolution is going to have to start at a grassroots level.
The revamped pension reform was itself intended to be something of a revolution, locking in all eligible workers in the country to saving for retirement for the sake of their own good – a positive notion in principle, clearly. And yet, the malaise among employers over planning for auto-enrolment is a perfect example of why attitudes towards pensions and benefits provision needs to change. Then, of course, there is the matter of how the scheme actually works – with many assuming they will be saving sufficiently for retirement only to be in for a nasty shock down the line – and the likelihood that the real test is still to come, with an expected ‘capacity crunch’ in 2014. Indeed, there are as many as 26,000 companies due to stage in a four-month period between April and July – and a staggering 55% of these have no scheme in place as it stands.
In a broader sense, however, the key point here is that the change needed will have to start with the employer and individual employees. Time and again I have seen employers with good intentions do their employees a disservice by offering the wrong type of benefits, or implement a top of the range new scheme without adequately educating staff on the value of the options available. Leaving employees to their own devices when it comes to prioritising and selecting their benefits can be risky to say the least – an endemic tendency among staff to think about the short-term means people regularly give up crucial long-term options for the ‘flashier’ choices like vouchers or gym membership, without doing the maths or examining the real impact.
In fact, I once came across a particularly tragic instance involving an individual whose company put in place a new flex benefits scheme, with options ranging from pension and income protection through to discount schemes and additional holidays. Given the choice, the employee placed more value on three extra days of holiday to spend with his young family than on four times salary ‘death in service’ – and just eight months later tragically passed away after being involved in a car accident. The life cover may have seemed insignificant at the time, but as it turns out would have provided a significant buffer for the family in question. Helping staff to value the right benefits will always be a challenge, but this tragic example highlights how sometimes good old-fashioned core benefits have the most value of all – even if the staff don’t realise it at the time.
Auto-enrolment has presented companies with an opportunity to re-engage with their employees by demonstrating their interest in their employees’ financial well-being. But securing engagement is dependent on employers’ level of commitment to the scheme. Opting for the bog-standard NEST scheme is, in effect, a sign of disengagement, and as such auto-enrolment will highlight two types of employer: those who merely comply with it and those who are genuinely committed to helping their employees improve their retirement prospects. There is a delicate balance to be managed here: organisations due to stage in 2014 must act swiftly and decisively in order to prepare, but opting for the easy option – a standard scheme through NEST – will cause problems in the long term.
When it comes to the next generation and financial planning, signs are positive. Recent research suggests younger workers are increasingly taking an interest in planning for the future – in fact, a study by the National Association of Pension Funds earlier this year found people aged between 25 and 34 years old were more likely than many older workers to be planning to increase their retirement saving over the next year. However, employers must take greater responsibility in helping them get it right. A more financially erudite and secure workforce will make for a happier, less stressed workforce – and that’s good news for everyone.
Derek Miles, Managing Director, Aspira