10 million workers won’t have enough money to retire on.
In a recent article in the guardian, the former Pensions Minister Steve Webb argued 10 million people in work today will not save enough during their working lives to enjoy any kind of realistic pension. Specifically, he highlights the 10 million people currently in work but on middling or low incomes, who he argues will be seriously disappointed if they think their enrolment in a pension scheme will lead to a pension that will pay out anywhere near enough when they come to retire.
The problem is that, while the policy of auto-enrolment has worked well, contributions will only be about half the necessary level even after the built-in contributions escalator.
How to address this? Getting people to think seriously about pension saving is notoriously problematic. Either they think they are too young to be thinking that far ahead; or that they are too far down the road for any action to make any difference. Hence the interest in “nudge” strategies such as auto-enrolment, and Webb’s latest idea of “auto-escalation”. Auto-escalation works by directing part of every pay rise into the pension pot - sort of “if you’ve never seen it, you won’t miss it”.
But there is an unavoidable truth here. For many older workers, they simply don’t have time to readjust savings patterns enough to get they want (or need).
In our Retirement Transition programme – Envisage – finance is a key part of the curriculum. We discuss budgeting, pensions, state benefits and a little bit on investment. It’s essential because without a clear understanding of the financial position, it’s silly to make specific plans and thickens the fog of uncertainty so many people feel as they try to chart a course through the next phase of life.
But the hard facts noted above suggest that for many, the conclusion will be to defer full retirement and to ensure they are still working and earning for much longer than they had anticipated. Working later is going to be a norm for most people in our age cohort, and employers will find more and more of their workforce wanting to discuss how to make that happen.
However, the good news is that working longer can be good for both the workers and their employers. Reports from IFS, CIPD and Age UK all challenge the assumption that older workers have lower productivity. And staying active and economically productive is good for the workers themselves in terms of health and wellbeing. Of course, this won’t be true for everyone affected, but it’s time to get our heads around the reality of a longer working life.