Auto-enrolment can’t come soon enough, says Richard Butcher
This may be too much information… but I woke up in a hot and sticky sweat the other night. Not pleasant.
This happens to me occasionally, I’m sure it must happen to all of us (at least I’m hoping it’s not just me). What causes it varies, but on this occasion it was panic about my own pension planning.
I’m in the second half of my 40s and I’ve worked more than half of a traditional career length. My father’s generation, at my age, were starting to look forward and think “maybe another 5 years and I could retire”. I’d like to but I’m not.
The problem, for me, is that I was not part of that golden generation with a final salary pension scheme. I am reliant (mostly) on DC and I know (a) how much it costs to retire and (b) how much risk there is in the process. I was woken by a panic that I am not doing enough and that I will have to keep working (if I can find work) until I am much older than the 65 that is commonly assumed.
I panicked because I know about the sheer size of the problem I face.
Here are a few snippets I’ve picked up, some old, some new:
· MetLife did some research which was reported in May 2012. The thrust of the results were:
· Those born between 1961 and 1981 (I was) on average face a £300,000 shortfall in the capital needed for retirement
· They (we) have large mortgages to pay off and often our children’s education to fully or partly fund (private schools maybe but almost certainly university)
According to the NAPF (May 2011), 3 million of today’s workforce, that’s a whopping 8%, are relying on winning the lottery to pay for their retirement. A similar number (9%) are hoping to inherit a windfall for the same purpose. One third of the workforce is planning to rely on the state. Clearly, none of these strategies are particularly robust.
In their 8th Annual Report on the state of retirement savings across the nation (May 2012) Scottish Widows revealed that the average pension saving rate (excluding DB members) is 8.9% of total income (down from 9.3% in 2011) and that only 46% of the population is saving enough towards retirement (described as a ‘sharp fall’).
Hargreaves Lansdown have calculated that the average earner needs a fund of around £400,000 to provide enough pension (additional to state pensions) to provide an adequate retirement income.
Finally, as context, an Office of National Statistics report (October 2011) reveals that the UK savings ratio is 7.6% of net income (according to Lloyd’s, this contrasts with Germany at 10% and China at 47%!). The average UK household has just £5,009 of savings and investments available for a rainy day. This is important as low reserves are not conducive with locked away long term pension saving.
So a few conclusions:
· I’m not alone. Others should also be worried. Very worried.
· Flawed as it may be we need to cheer from the roof tops about auto-enrolment. I accept that it’s not the end of the problem, but it is the beginning of the end of the problem.
· Those of us in the know need to shout, loudly and irritatingly about the importance and urgency of saving for pensions. We need to shout frequently and repeatedly. We all need to become evangelists for the cause.
The other night wasn’t pleasant and I don’t wish sleepless sweaty nights on anyone but I really do think it’s time we raised the public’s anxiety level about pension saving.