Keith Churchouse: Why time is running out for the name ‘pension’

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Auto-enrolment bubble

Keith Churchouse: "The real solution to making the pension savings message tangible should be far simpler. Indeed, changing the name would be a good start, because many are so confused by the pension topic that they switch off."

More than 10 million in the UK are saving into an auto-enrolment pension scheme. Many will believe that they have ‘ticked' the pensions box and their retirement saving is under control. Invariably, this is going to be wrong, warns Keith Churchouse...

Many of you will know that I like to tinker with old cars and vehicles. I am not the best on the spanners, but I have some skill with various parts of a vehicle, particularly bodywork, electrics and for some strange reason, windscreens!

Tangibility is the key point for me. You can create something from a piece of metal, or a tin of paint, that people can see and admire. Like some windscreens, it can be difficult on occasion to see through financial advice to see the real tangible advantage, and this has been a criticism and concern for some pension investors for years. It's only when time has passed that the advantages may be seen, and perhaps by then, if advice was not taken, it is too late.

Whilst I polished some aged Saab brightwork, the clock on a dashboard removed from an 80-year-old van ticked away poignantly on the workbench - a reminder that irrespective of its circumstances, time is still being spent without regard to the future.

Disappointment

Tangibility, and the ‘success' of workplace pension auto-enrolment, is a great example I believe, of disappointment to come for many millions of savers, new and old. More than 10 million in the UK are now joined in and saving into an auto-enrolment pension scheme - about 78% of people now have a workplace pension.

However, many will believe that they have ‘ticked' the pensions box and that their retirement saving is under control. Invariably, this is going to be wrong.

Making the pensions numbers as tangible as real money, in today's terms, is paramount to allow savers to understand what they will really have, and if they ever have enough to finally hang up their work clothes and relax. Sure, the state pension has great value, but it's normally not enough to survive on. And if inflation returns to ‘normal' levels that we have experienced in the past (4.46% + as an example only a decade ago/ ONS), real purchasing values will be dented.

Let's not forget increased longevity, with stats from the ONS in September 2020 noting that UK life expectancy at age 65 on average for men is to age 83.8 years old, and 86.1 years old for females. Longer than many anticipate, and it will be noteworthy if Covid-19 changes these figures.

The real solutions are not dashboards, or pension consolidation offers, or 15+ pages of key features, or indeed more regulation. The real solution to making the pension savings message tangible should be far simpler. Indeed, changing the name would be a good start, because many are so confused by the pension topic that they switch off.

We have lost them before they start, and I would guess this is why the compulsion to save was implemented through the auto-enrolment legislation some years back. Most do nothing and are saving automatically, with many never logging in to see where they are in comparison to the possible aspirations they have for old age. This has to stop! As a start, link the pension to your bank account so you can see the value.

The role of tech

Technology has a part to play here, with many savers comfortable using apps and the like to see what's going on. However, do these really deliver tangible messages, and what might retirement look like when it finally arrives? The only reason why it might not arrive as expected is because the messages were never really understood, and we all need to take our retirement planning messages to our ‘workbenches' for a thorough overhaul.

Like the clock on the van dashboard, time is ticking, and the bubble that is the auto-enrolment savers will reach state pension age in the coming decades. I hope that it is not bad news in the press that is the driver not to save for retirement... again.

Calling these notes tinkering might be fair, but in reality, these thoughts are tangible.

Keith Churchouse is director and Chartered financial planner at Chapters Financial

Source: PA