Active and Passive Savers
When it comes to pensions, we are a society divided in two: those who plan for their future and those who do not. Some aren’t consciously planning for old age but are lucky enough to have a certain amount of security provided for them by their public sector pension scheme. Teachers, police and fire service workers, civil servants, and those working for the NHS may be concerned about the future returns on their pensions but they do at least have a pension plan. These professionals have always been secure in the knowledge that they have saved throughout their careers, thanks to a scheme that deducts money from each month’s wages to pay into their pension pot. Their participation in this scheme is often passive: unless they are planning to retire in the near future, they pay little or no attention to this asset. Until it is under threat at least. But what about the rest of us? How many of us working in the private sector are actively planning for our future? Are you an active saver? If so, don’t feel too smug just yet…you will still benefit from reading on.
What are our expectations of retirement?
For most of us, the idea of an early retirement spent travelling the world or pottering around a golf course is as much of a fantasy as winning a lottery jackpot. The future is a distant consideration; the here and now is difficult and increasingly expensive. Saving is something we do for a mortgage deposit so we can finally get onto the property ladder in our own right. Or maybe we work long hours and save our money for a well-earned holiday, the latest phone or a more reliable car. We want to enjoy our time while we can. This attitude is shared by so many of us that we are likely to be in for bad news when the time comes for us to finish work. Recent research conducted by PwC indicates that the average person requires a pension of £22,200 per year for a comfortable retirement. The actual amount that people are saving, on average, will only provide a pension of £10,000 per year. And that is only for those of us who are bothering to save at all.
Our social responsibility: to protect ourselves and our children
Like organising a will and paying for life assurance, paying into a pension is something that is too easy to put off. It involves thinking ahead and facing the painful and inevitable truth that we will get old, if we are lucky. Failing to plan for these eventualities is not only irresponsible from a social point of view; it also has the potential to mess up our loved ones’ futures. If it’s hard for our children to manage their debts and get on the housing ladder, how will they cope if they also have to cover the cost of our nursing care? National Insurance contributions currently don’t yield enough to provide for more than the most basic needs. This situation is unlikely to improve. We have a collective responsibility to change our thinking and plan for our own future. This means you, whether you are an employer or an employee.
Let’s be honest: Auto Enrolment is a pain to set up. It is another expense that will deduct money from your pocket. For employers, it’s a minefield of procedures, rules and regulations that could mean hefty fines for inaccurate calculations. But the alternative, burying your head in the sand and pretending the future won’t arrive, is the stuff of nightmares for all of us.
With good advice and some careful preparation, we will all benefit from Auto Enrolment in the long run. Employees will be part of the scheme automatically, as long as they are eligible. This forces them to take responsibility for their future and raises awareness of pension schemes. We need to stop telling our young people that pensions are something to think about when they are older. In fact, we need to be encouraging them to save 15% of their salary from the start of their careers, if they are to have any hope of accruing a pension pot that will afford them a comfortable retirement.