Auto-enrolment has been a huge success and is a very good thing. Collectively, we should give ourselves a pat on the back for this: 9m individuals enrolled, and 90% of them have stayed with it
HEADLINES
- Auto-enrolment has been a huge success and is a very good thing. Collectively, we should give ourselves a pat on the back for this: 9m individuals enrolled, and 90% of them have stayed with it.
BUT
The 8% contribution rate is nowhere near enough to support an acceptable standard of retirement – it needs to be nearer 20%. There are 12m individuals who are undersaving for retirement; 10.4m of those are earning over £25k p.a., so it isn’t just an affordability problem for the very poor, but an engagement problem for everyone
- Technology will be the key to solving this, as we have shown that traditional face to face attempts at financial education fail. The pensions dashboard will be a huge help, and we have to make it happen. This is all about providing people with information to make better decisions, not about product sale. Open banking has potential to be a significant catalyst, as one participant observed that they had integrated their client’s pension with their current account at a new bank, and for those customers saving rates were much higher.
- We need to take a people on a financial journey over a sustained period, where first they engage to resolve expensive short term debt, then build a rainy day fund, then start to save for shorter term goals like a holiday or new car before finally they can think about investing for the longer term and retirement.
KEY CHALLENGES
- Not enough people are saving, and those that are saving are not saving enough.
- The growing number of self-employed are excluded from AE.
- There is almost no engagement from those in schemes.
- We have very low financial engagement and education, compared to other developed economies: half the population do not understand what % means.
- Many people have to sort out debt before they can even start to save, but it is essential to build the saving habit as early as possible.
- How can we tailor messages, communication and propositions to give people a sufficiently bespoke experience to transform engagement?
- For Big FS firms:
- They are still strategizing for their grandparent clients, not the grandchildren. Grandchildren are harder to understand, and we don’t get it yet.
- They spend so much of their energy avoiding giving regulated advice, but what about “nudging”
CONCLUSIONS/SOLUTIONS
- Education, education, education.
- The impact on people if you can deliver a visualisation of the impact of their decisions is much more powerful than just words. Not just a future performance chart, but pictures/videos of comfortable vs destitute retirement etc.
- For a new generation, it also about what else your money can achieve while you are saving, so for example impact funds or ESG that investors see as doing wider good beyond their personal outcome. They have also been scarred by financial crisis, have low risk appetite and terrified of debt.
- Using open banking and data to drive behavioural nudges on a day-to-day basis – fitbit for financial health?
- Industry players need to come together to deliver effective education: it’s too big a problem for one firm or government to solve alone.
