People have simple questions – mostly about what they’ll get
But Google “Pension Awareness Day” and this is what you get…
The UK is facing a challenge we are not saving enough for the future. We all want to retire someday and you can’t keep relying on that lottery win to see you through the time has come to take your future into your hands.
“Taking the future in your own hands is a call to save harder. Few would argue against that. Most of us need to save more for longer. But is the message right for a nation that right now is facing
- Increased fuel bills – from £2,000 pa to £5,000 pa
- Increased tax and national insurance bills as the NHS surcharge bites and thresholds are frozen
- Increased mortgage payments as interest rates soar
- The disappearance of up to 1m people over 50 from the workforce
Any one or any combination of the above is likely to severely restrict savings capacity. For millions of people , the key questions are not “can I save more?” but “can I reduce or stop saving while I’m in present poverty?” and “can I withdraw money from my pension pot – to pay household bills?“.
People (like me) who argue that Pension Awareness Day should be creating awareness of the use of pensions for immediate relief of poverty will not become “an ambassador of Pension Awareness Day 2022”.
In this blog I will focus on two activities that Pension Awareness should be promoting, but (I worry) won’t be.
The first is the payment of workplace pension contributions by people impoverished by the cost of living. Some of the chief features of today’s workplace pension plans are to do with flexibility of contributions that can be stopped , restarted, reduced and increased with the help of payroll.
Payroll teams are an important cog in pension awareness
Next week is national payroll week. I will be focussing my messaging to payroll on what they can say to people asking about pension contributions. I will explain to payroll just that!
Staff should feel free to tell payroll they want to reduce or opt-out of personal contributions – in part or altogether. Payroll should be telling people how this works, what the consequences will be to do with lost contributions from employers and how they can opt back in when times are easier.
Many workers think that pension contributions are a ratchet, once they have committed to a certain amount, they are stuck with it. Similarly, many people in payroll worry that by telling staff they can opt-in and out of pension saving, they are encouraging them to opt out. They aren’t – it is neither advice or encouragement – it is factual information.
Payroll are an important cog in pensions awareness, they are the front line when it comes to people’s take-home and take-home pay is all many people have – to stave off poverty.
Member support teams need to understand absolute poverty.
Most of the people who are likely to suffer poverty from the factors listed above are likely to get the majority of their retirement income from the state pension and universal and then pension credit. Pension Credit is particularly important for households with low retirement incomes as it is the door to more.
The critical years for absolute poverty among older years are from 55 to state pension age. Those of the years where people’s work income declines, when many furlough themselves relying on meagre jobseeker’s allowance , when pension savings are a bridge to when the state pension and pension credit cuts in.
People’s retirement savings – typically from workplace retirement savings plans provide important capital , which correctly drawn down can mean that those over 55 can pay household bills prior to their state pension age. The rules are important, £6,000 is the maximum people can hold in liquid savings before universal credit is reduced. Withdrawals from pots that are seen as capital not income (e.g. not regular monthly amounts) will not reduce universal credit. So if people are careful, they can use their pension pots as a bridge to the state pension age.
We know that many of the one million people over 50 who are out of the workforce are drawing on their pension pots either in conjunction with benefits or savings, to get by. Aviva report a recent 32% increase in pension pot encashment and a 38% increase in partial encashment. I see this as a sign of increased pension awareness.
But many people who have access to their pots – are concerned to do so. They are worried about the fear of their pots running out, by unforeseen consequences in terms of tax and benefits and they are often told they are scamming themselves (something that the Pension Regulator’s recent guidance on scams encourages administration teams to watch out for). Many people are still unaware of the rule changes of 2015 – unaware they have options.
There is a job of work to be done to help people in need of their money to maximise their take home and get to their pension pot – when available. But all the content I have read in association with Pension Awareness Day and the cost of living crisis, is focussing on getting people to tighten their belts, use less gas and electricity and find any other way than reducing pension contributions and drawing on pots to pay household bills.
The mindset of Pension Awareness Day this year may be inappropriately optimistic. It is unrealistic for us in September 2022 to encourage people to save more for longer. Instead we should be promoting pension saving as flexible in terms of contributions and flexible in how money is paid out. We cannot always use Pension Awareness as a marketing campaign for more of the nation’s savings. Sometimes, and this is such a time, we could use it to explain how being part of a workplace pension need not be part of the immediate problem. Indeed we should be promoting pension flexibilities as part of the solution.
The risk of insisting people save more for longer is that we are seen as needy and self-serving, out of touch and only interested in other people’s money for the benefit it can bring us.
