Christmas is a suitable time for reflection on the past year and thinking about what we want out of the next one. I think if I had to sum up 2009 it would be as that Dr Dolittle creature the pushmi-pullyu and if I had a wish for 2010 it would be for some better solutions. For those unfamiliar with tales about talking animals, the pushmi-pullyu is a creature with two heads at opposite ends of its body, each wanting to go in opposite directions. Shall we spend or shall we save? The recession had the odd result that the Government decided to spend its way out and people in general did the opposite.
Retirement saving on the whole withstood this collective belt tightening. But nothing so far has increased the popularity of pensions; quite the opposite. If we can take one message out of the events of 2009 it is that confidence in retirement saving – and retirement – is at a very low ebb.
News that the Government is going to extend the phasing in period for the introduction of Personal Accounts by another year has added to the frustration – another classic example of two government departments (DWP and the Treasury) pulling in different directions. But they are not alone in thinking there is no rush to sort it out: 28% of respondents to a Friends Provident survey assumed they keep working until they can afford to retire. The general consensus of people and government seems to be that work will continue to be on offer as long as people want and need it – no matter what employers think. The most popular alternative, incidentally, was inheritance: another 31% of those surveyed said they were relying on the will of a loved one to help fund them post age 70 in some form instead of saving into a pension. An expression of the continuing lack of realism when it comes to funding retirement is, that we have witnessed a speed up in DB closure and no corresponding mass take-up of its DC replacement.
All this is at least based on something positive: we are living longer and the expectation is that one quarter of babies born in the UK this year will live beyond their 100th year. Contrast this with a century ago when the first means-tested old age pension was paid on 1 January 1909 to just over half a million people of 70 and over. The maximum payment was the 2009 equivalent of just under £20 a week but even this could be denied, if you had been to prison, were habitually drunk or were otherwise of bad character. Our current basic state pension is just 17% of average wages but the National Insurance system has replaced the morality check and its contribution requirements mean that only 35% of women and 85% of men actually receive a full pension.
If there is one place we need to make progress on in 2010, it is in convincing workers that they need to save for self-reliance to a very old age.
Another is harnessing technology to support workplace savings so that we can apply some new solutions to the growing problem of pension disengagement. When everything else seems to be in pushmipullyu state, technology is consistently in fast forward mode. Friends Provident was the first with a pensions administration platform more than a decade ago and developments since then have established investment platforms and the newest innovation, the corporate platform. We’re now talking about workplace solutions rather than products and that’s what technology provides: speed, economies of scale and much more choice.
But can it also get employees engaged with saving? One of the attractions of a corporate platform is that it will appeal to younger workers and it makes a great deal of sense to look to Generation Y to lead us in a new direction. A report commissioned by Friends Provident earlier this year revealed that younger workers are changing their behaviours in the light of recession more significantly than the older generation.
They are said to be more debt averse and most likely to have increased their level of saving. They are also pulling us into new channels of pension communication.
In the New Year expect new solutions.
or follow Martin on Twitter: www.twitter.com/PensionsWomble