Make pension saving more interesting and we’ll all be better off

Consumer champion Sam Dunn calls for someone to spark a serious interest in saving so we don’t all retire poor.

Bouquets or brickbats? Praise and encouragement versus punishment and fear of failure have long been minted as two sides of the same coin: how best to motivate an individual to succeed?

Which suits you most comfortably is rather less simple, of course.

However, sometimes you won’t even have the choice – when it comes to saving for a pension, it’s the bogeyman approach or bust.

The scale of the pensions shortfall

Last week, a fearful report by the Chartered Insurance Institute estimated the UK's overall retirement savings deficit – the chasm between what we will retire with and what we really need for a decent income in old age - stood at a jaw-dropping £9 trillion.

Earlier this year, a mournful survey from insurer Aviva warned that a fifth of the current over-55s owe £65,000 on average while trying to save for a pension – and heaven help those whose debts hover at the higher end of this sad scale.

Separately, the OECD, who work to improve the economic and social well-being of people around the world, recently noted that, on average, UK pensioners only manage to take home less than a third (30 per cent) of their pre-retirement salary when they stop working. The OECD found that much needed to be done to avert a crisis.

Other industry reports continue to underline the mountainous task facing us: for a £25,000-a-year pension, your pension pot must currently aim to top a staggering £500,000.

Are we getting the message?

These are undoubtedly big sticks and they do a good job of beating us around the head about the sheer size of the problem. Yet how much do they actually achieve? Precious little, might be one conclusion given the low retirement savings rates.

Some 12.5 million employees aren’t even members of a company pension scheme while nearly 2 million UK pensioners are officially in poverty. And worryingly, six out of 10 single pensioners in Britain take home an annual pension of less than £10,000 – that’s way below half the national £26,000 average salary.

Heartless hectoring of the UK’s workforce about their poor pension provision isn’t exclusively to blame, naturally. Plenty of deep-rooted factors are at play here: small salaries, ignorance, huge personal debts and mistrust of the UK financial services industry (and who can be surprised after countless mis-selling scandals?) to name just a few.

Each of these carries an emotional charge which in turn complicates the matter for pension providers trying in vain to make a more general connection with the population at large and encourage saving.

However, it’s horribly evident the message is being scrambled.

A better approach

So instead of the scaremongering, perhaps it’s time for a subtler, softer – nay, smarter – approach to encouraging saving for retirement.

Rather than spout blood ‘n’ thunder about the dangers of not saving enough, why not introduce – via Citizens Advice, financial advisers or even product literature - a more positive “can do” approach along the lines of “Save £50,000 over a lifetime and this is how much you can expect to have in retirement; save £75,000 and it’s this; £100,000 and you’ve this; and so on”?

Or why not – this time through a Government agency - harness the vast company pension databases to throw up some more encouraging statistics such as the number of new savers and their average contribution size, and how much it’ll likely give you assuming 5 per cent annual growth, say?

Could a pension lottery do the trick?

Although the soon-to-arrive semi-compulsory national pension scheme (nicknamed NEST) is part of a long-wished for radical rethink on pensions, a subtle change in the way savers are talked to is arguably as important.

Ros Altman, director-general of Saga and a respected pensions specialist, has gone so far as to suggest renaming pensions and even introducing a monthly £1m lottery prize to reinvigorate interest. Gimmicky, yes, but still one hell of an incentive likely to spark some serious interest in saving.

I’d suggest a key caveat, though: at least half of the windfall must be kept back for the winner’s pension. 

Comments

[Brian Bennis]

A pension lottery is a fantastic idea to incentivise saving. As the number of people reaching 100 increases year by year, UK PLC is heading for some seriously choppy financial waters unless the population starts putting money aside now.