I’ve never had an “ology”, but always fancied one. So I thought I’d have a go at futurology. Futurology is the study of possible, probable, or preferable futures for society and the worldviews that underlie them. There is a debate as to whether this discipline is an art or a science, or just a bit of fun indulged in by the weekend supplements on the Sunday closest to New Year’s Eve.
Obviously there is a spectrum in futurology. I’d tend not to invest too much faith in those futurologists who cite their predictions as being the result of channeling Thrag, a 9,000 year old lizard-being from the planet Zoltar. But some approaches have a slightly more reputable pedigree , and are essentially the statistical collection and analysis of past and present trends with the goal of accurately extrapolating future trends. When they put it like that, it almost sounds like being an actuary!
So if I apply my ology to the pensions field what might I divine?
Well, what about past and current trends? Recently, Scottish Widows published their seventh annual report on the state of retirement savings across the nation.
The most damning statistic is not a new one – 20% of those surveyed are saving nothing for retirement in 2011, a slight improvement from 21% in 2010. Also, the survey concludes that just over half of those surveyed are assessed as making enough provision for their retirement. Somewhat worryingly, the threshold for qualifying as being adequately prepared for retirement, according to the study is setting aside 12% of pay (including employer contributions) – I don’t think there would be many in the actuarial or financial advisory sector that would conclude that 12% of pay is enough.
The UK does not seem to fare well in retirement savings stakes versus other developed economies – the survey refers to a recent Chartered Insurance Institute report which estimated that the UK Retirement savings gap at £9 trillion.
There is some encouragement to be had relating to the impact of auto enrolment and NEST, with only 11% of those surveyed saying they will opt out rather than be automatically enrolled, so the future trend may be for more retirement saving but at a level, 8% in aggregate, that is unlikely to make a real difference to most people.
A proposal which has generally been welcomed in pension circles is the introduction of a flat rate state pension of £140 per week (in current terms). I see one of the main positives of this proposal as being that additional savings would be rewarded and not offset against some state benefits as is currently the case. Indeed, I attended the Actuarial Profession’s annual conference last week and Pensions Minister Steve Webb stated this aspect as a significant advantage of the flat rate pension system. However, the survey suggests that there is a significant communications and financial education challenge in convincing the wider public that the flat rate pension system will reward savings, as only 18% of those surveyed stated that the system would lead to them saving more.
The survey also details a high level of expectation on employers to engage in the retirement savings process. 70% believe an employer should provide access to and contribute to a pension arrangement. More surprisingly, some 40% believe that employers offering a pension scheme should offer a full advice service. My experience is that the number of employers offering such a service would be significantly less than this level.
Together with moves by the Pensions Regulator to encourage employer engagement in Defined Contribution arrangements and facilitate access for staff to open market options at retirement, it should now be an important consideration for employers to effectively communicate the benefits of retirement savings and also assist with retirement planning for members approaching retirement age.
Finally, to get another angle on the public view on retirement savings I consulted the comments section of the BBC website’s reporting of this story. At last check, the story had attracted a staggering 327 comments, which at least shows that the public seems to be engaged on the topic of pensions at the moment. However, comments such as,
“Saving - might as well spend it.” “most people distrust pensions” “Don't bother with pensions - they are unsafe and unprotected.”,
illustrate that trust and belief in retirement savings is still far short of the level required to encourage the general public to engage in the process. That, for me, is the biggest challenge facing the industry, and indeed our wider society, and a challenge which seems to be getting harder rather than easier over recent years. Financial education needs to be a priority for the UK, and our industry is well placed to play its part, but the Government also has a leading role to play.
So what sort of future do we want? A future where all our citizens have a meaningful income and standard of living in retirement? Or, in extremis, a dystopian, ageist future in which the state provides for retirement but can only do so by permanently “retiring” everyone reaching a particular age? I’m afraid, based on the current evidence that, unless we can change society’s behaviour radically, our future is more likely to resemble Logan’s Run than Utopia.