On a day when the NAPF announced that only 44% of us think a pension the best way of providing for themselves in retirement, I sit at my desk contemplating yet again how we can get people to understand what they can do to make sure they have a financially secure later life.
While it’s encouraging that the numbers who understand the value of pensions has increased (up from 35% last year), it’s worrying that
less than half of respondents (48%) said they were confident about pensions, while 43% said they were not.
Put bluntly, there are three things people can do to help themselves, spend more on their retirement, invest wisely and work longer. As the first and third options depend on personal motivation, I’ll not bang on about them here. For three decades , most people have been lucky enough to have employers who not only spent generously on our retirements but also took the trouble to manage the investment of our money, guaranteeing us cash and income according to an agreed formula.
Although there have been one or two cases where these arrangements have failed, the vast majority have paid out in line with the promise- some in excess of the guaranteed amounts.
But those of us who are not close to retirement are unlikely to be so lucky, we will progressively receive less as the employer spend reduces and as we find ourselves in charge of managing our own investments.
It seems that the craze for investing in residential property is waning as people work out for themselves that you can’t buy a sausage with a brick, that the value of a house can fall as well as rise ad that the incidental costs of managing a property erode income to a degree that make it a poor source of retirement income for most of us.
Similarly, the much heralded rise of ISA investment seems to have stalled, the NAPF report that only 12% of us see them as the best way to save for our later years.
This brings me on to Bunnies, Bears and Badgers. Over the past few days I have been participating in an interesting discussion on this, you can read it here.
There seems to be a misconception among some of my colleagues that people should be engaged with the investment of their pension fund. I do not share this view.
The vast majority of us are investment bunnies who have no more interest in the value of shares and bonds than of the intricacies of the internal combustion engine. We want a car whose motor is reliable and takes us from A to B in a safe way, we might chose a racier or a slower version but we generally accept the performance of our car and leave the rest to the mechanics. Investment bunnies will accept the standard investment approach (usually referred to as the default option) and there is nothing wrong with that- so long that is as the default option works.
There are however investment Bears, those more curious about investments who are prepared to do a little research and make investment choices. We call them Bears because, like Pooh, they have insufficient confidence in their own expertise and will usually seek guidance on what they are doing from people they trust, these could be the company pension experts, family or friends or a professional financial adviser.
Finally there is a small and nerdish group of people who we call Badgers who obsessively rummage through the financial press and take decisions on their own account. We all know such people – they are few and far between and they are not always as right as their certainty might suppose.
Statistically, the vast majority of people are Bunnies . Typically 80% of people use the default investment option and while I suspect that they include many lazy Bears and even a few Badgers, I think it unlikely that we can turn most Bunnies into anything else.
It’s the responsibility of pension experts, those who manage the default options of personal and company pension plans to make sure that they work as well as possible. The NAPF tell us that only 35% of their respondents said they were confident that their retirement plans would give them enough to live on which tells me that there are a lot of frightened Bunnies around (me included). There is a huge job to be done- firstly in making sure that the funds people are asked to invest in work properly and secondly promoting these funds as worthy of carrying people’s retirement ambitions.
It’s also probable that many of the Bears find themselves lacking in the guidance they need to feel confident in their decision making– in a previous blog I have talked about guidance as leadership and this is what is needed- advisers who will help those needing validation of their plans to be decisive and confident in their decision making and decisions.
But at a more fundamental level, we all need to know that the retirement planning we make, builds upon a solid foundation of support from the State that repays the tax and national insurance contributions we have made over a working lifetime. We need solid leadership from Government whatever kind of animal we are. As Joanne Segars of the NAPF puts it
We need a simpler state pension that provides a solid foundation of basic retirement income and which lifts people off means-testing to ensure that people keep what they save. That would be a major step forward in restoring confidence in pensions
Behind these wise words is an implicit acceptance that to get people to engage in managing their retirement, those of us responsible for leadership in pensions, had better win back the respect of those we serve – be they Bunnies,Bears or Badgers.