Phil Young has written a wonderfully funny article in Money Marketing that’s full of insight. He lays into the lazy thinking at insurance companies that promotes saving at all costs. He doesn’t us the word “Savinisters” (I may have made it up) but I hope he’d approve, saving is not an end in itself, it has to be linked to spending for what goes up – has to come down.
Unless of course you work for an insurance company whose main aim is to hang on to your money for ever! Phil Loney, Royal London’s CEO recently welcomed news that pensions were being used as an inter-generational wealth transfer mechanism by IFAs, if anything gets under the skin of the Treasury, it’s having tax-incentivised savings being use to mitigate capital taxes – be careful for what you wish for Mr Loney!
There is of course an optimal level of saving for each of us and it should (from a policy perspective) be set on the basis of future consumption, not on some basis of tax-efficiency. We know from studies in other countries, that people have a lot more difficulty spending their retirement savings than accumulating them – the phenomenon of reckless conservatism is not confined to Britain. This calls into question the FCA’s current view that we do not need a default means of spending our cash – but that’s to take Phil Young’s article off in another direction.
My point is that we should only save what we intend to spend. Some people may save to spend our money on our legacy but I think most of us would subscribe to some version of the phrase “you can’t take it with you when you go”.
Phil Young brilliantly points out that most Savinisters have been featherbedded by non-contributory workplace pensions provided by their employers. They are singularly unqualified to lecture everyone else.
Which gives me an opportunity to have a sideswipe at some organisation called the Association of Independent Professionals and the Self-Employed which sent me a ludicrous report yesterday , complaining that the self-employed were about to become a burden on the state because they weren’t saving enough. Apparently around 40% of self-employed people, when asked if they’d allow themselves to be auto-enrolled stuck two fingers up! Presumably those asking the questions had never been or fealt inclined to be – “self employed”.
Work is boring – pensions are boring – why not pick on employers instead?
Having had a go at those who have a go at us, I’ve got to accept that many people aren’t saving enough and know it. They need help and they look to their workplace pensions to provide (work is boring, saving’s boring- there’s a synergy).
Actually it’s the employer who can organise the saving to spending ratio best as has been brilliantly demonstrated by auto-enrolment. The increases in mandatory contributions for employer and employees from April 2018 do not appear to have resulted in noticeable increases in opt-outs (we await the impact on average earnings growth).
Most of us do as we are asked by our employers. If insurance companies want to increase savings rates, it makes sense for them to talk with employers about their reward strategy. People seem to accept any reasonable contribution rates the employer chooses, surely this is the line of least resistance for the Savinisters?
The negative impact of HR snake oil salespeople.
In my recent experience reward and HR teams are downgrading pensions in favour of concepts such as financial wellness which afford them the sense they are at the cutting edge while costing the management and shareholders very little. While we are being sold the idea that financial wellbeing is at the heart of the employee value proposition, the material things – pension contributions, salary and so on get minimal attention. Complicit in this are the army of snake oil salesmen purporting to be employee benefit consultants. Let’s say it like it is, employee benefits start and with pensions, the rest comes second.
But enough side-swipes at snake-oil. Back to the problems with savings. It makes sense for employers to contribute at the minimum AE rates unless impelled to do otherwise. That impulsion can come from staff demanding more, peer group pressure from rival firms paying more or from providers incentivising more.
Savinisters barking up the wrong tree
The Savinisters who demand we voluntarily up our personal contributions are barking up the wrong tree. They should be barking up the employer’s tree and establishing quid per quos that exchange (for instance) better service for higher contributions.
If they are to do this, they are going to have to bypass the benefit consultants and start talking directly to their customers. That means the participating employers of master trusts and the sponsors of contract based workplace pensions.
In short – Savinisters – leave us alone, start talking to employers and don’t let the snake oil sales people have it all their own way!