We know that the government will be keen to sign up members for the new state-sponsored national pension scheme in 2012 but is it in danger of seeming a bit too keen?
At the same time as we hear the scheme – hitherto Personal Accounts – will have a new name, we are also informed that children aged five are to be given compulsory lessons in saving. The way our politicians are thinking is further revealed by the new name for the pension scheme. It is to be called NEST. Before our chicks are fledged they will be budgeting for Britain.
According to Ed Balls, the Secretary of State for Children, Schools and Families the programme will start in 2011 with lessons in how to use a piggy bank. From September 2011 all schoolchildren will be taught about saving and money management. Ed Balls is quoted as saying: “It’s really important that we teach our children about pensions, responsible saving and effective money management”. I’m unsure what ’responsible saving’ might be, however, unless there is such a thing as ’irresponsible’ saving.
Five may be a bit young for investment decisions but this new emphasis on practical economics in schools comes not a day too soon. Many in the financial services industry have been saying for a very long time that the only way to make a big difference in UK financial literacy is to start in the classroom. It’s a mystery why it has taken so long. Out of the credit crunch and university debt something good has emerged, although it would be ironic if education debt has led to education in debt management. More likely the government is cranking up the machinery for a ’saving is good’ campaign just before NEST is launched in 2012. Let’s hope the promotional messages include some that highlight the value of existing employer-sponsored schemes.
Surprisingly perhaps the PR may be better aimed at older workers than those in their twenties who aren’t necessarily as profligate or lacking in good sense as we suppose. A recent study commissioned by Friends Provident revealed that 21-29 year olds are setting the pace for a healthier financial future. Nearly one third (31%) of those surveyed were paying off debt before saving for a house (25%). Nearly half (44%) of ’generation Y’ were already paying into a company pension and 35% said they intended to start contributing to a pension before they hit 30.
Furthermore the research revealed that 21-29 year olds plan to use additional saving vehicles for their retirement including ISAs (43%) and investment (equity) portfolios (35%). Only 11% didn’t intend to use a pension. Given that this generation can expect to live for a very long time, the acknowledgement that retirement saving has to start early is a significant step forward. It looks very much as though the message about not relying on a state pension has been delivered: more than half (58%) of the surveyed group agreed that the state pension would not be enough to support them by the time they retire.
The next step is to decide whether having millions more workers in pension plans via auto-enrolment and NEST should re-double efforts to educate them to be sophisticated investors with many choices or basic budgeters with a few decent off-the-peg options.
Now that the political parties agree that Britain’s debt culture has to change into a savings culture we can expect more initiatives. One of them should be a commitment to help us all by making pensions more flexible and the rules simpler. Postman Pat explains Tax Simplification could be a bestseller.