31st Oct 2022

Gambling with Pensions

This week is Pensions Awareness Week, taking place from the 31st October to the 4th November. As the country braces itself for a winter of economic discontent, I will be surprised if this week does much to raise the profile of pension savings amongst the younger generation – let’s be honest, people have other things on their mind right now.  

Roll-up roll-up

The rollout of automatic enrolment led to a tenfold increase in total membership of Defined Contribution occupational schemes, from 2.1 million in 2011 to 21 million in 2019. Overall, 88% of eligible employees (19.4 million) were participating in a workplace pension in 2020.

On this measurement, automatic enrolment is widely agreed to have been a success. But what has it done to increase the level of engagement amongst pension savers?

With the government expressing concerns that many are still under-saving for retirement, a recent report from the Living Wage Foundation and the Resolution Foundation raised the same concerns, claiming that 16 million people are not saving at levels expected to bring an acceptable standard of living in retirement. This report has called for the development of a Living Pension Standard.

Save yourselves

Whilst I agree with these findings, I am not sure simply telling people they need to save more, particularly in the current environment, is the best way of getting them to appreciate the value of saving for retirement (or saving generally).

In my opinion, we need to turn savings into something people ‘want to do’ and not just something they ‘need to do’ – to achieve that objective, people need to see a tangible benefit.

For me, it is more worrying that a recent report suggests one in five younger people are planning to reduce their workplace pension contributions due to the cost-of-living crisis. This tells me that younger people see pension contributions as a barrier to meeting their current essential expenditure and not as the answer to meeting their future essential expenditure.

Reverse the system

Shortly after I got my first job in a bank aged 18, my uncle gave me a book called ‘Thirteen Against The Bank’. Surprisingly, it had nothing to do with banking, in fact, it was a true story about a man called Norman Leigh who recruited twelve people to play system roulette to break the bank at the Casino Municipale in Nice.

At that time system gamblers were welcomed by casinos as no one had come up with a system that worked. The system Norman Leigh used is called the ‘Reverse Labouchere’ and involved taking a failed system and playing it in reverse. Within two weeks Norman and his ‘crew’ had won so much money they were banned from every casino in France and now system gamblers are no longer welcome in casinos the world over.

Forward thinking?

Having recently re-read this book it got me thinking – what if younger people saw their pension contributions as part of the solution to the current cost of living crises and not part of the problem? What if people could draw money out of their pension before age 55 in a controlled way?

Appreciate this is thinking a little outside the box… But hear me out:

  • I do understand the significant long term impact of taking money (even a relatively limited amount) out of a pension pot;
  • But I also understand the long-term impact of people reducing their contributions (or worse, ceasing them altogether) to cope with the current cost of living crises;
  • I also understand the potential implications of people finding other ways to meet their essential expenditure such as pawnbrokers, pay-day loans and loan sharks.

Imagine what conversations would currently be occurring if people were able to take a limited (let’s say £2k for argument sake) one-off withdrawal from their pension pot – imagine turning on the radio or TV and hearing about how pension pots are being used to help people find a way through the current cost of living crises – or imagine young people sitting around a table in the pub talking about how they are glad they made contributions into their pension because of its ability to help them now in a time of real need.

If someone reduces (or ceases) their contributions into a pension as a result of the cost of living crises, the only party they are likely to engage with is their employer and we know for a fact that the chances of them starting or increasing their contributions again in the future are limited.

If they were able to take a one-off withdrawal from their pension, they would need to engage with the pension industry – and that would give us a fantastic opportunity to talk to them about all sorts of things such as increasing regular payments (even if it’s just to a level that would be expected to recover the withdrawal over their working life – but ideally more), reviewing their investment funds, longer-term planning for retirement and the availability of wider financial advice and guidance to name just a few.

Where next?

I am not necessarily advocating the above proposal as a sensible one, I am merely saying that I think it warrants consideration. It may well be that the only answer to the future pensions crises lies in compulsory contributions at a level that provides a ‘Living Pension Standard’.

Continuing to bang the drum about the need for people to save more for their future clearly isn’t working – if we want to avoid a world of pension crises or compulsion, I believe we have to find a way that makes people want to save more in the future.

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