Chief Executive at FEIFA / FECIF Secretary General
Pension provision - is this the real “gap”?
The “advice gap” has received considerable coverage in the personal finance pages and trade press for some time now, across the UK in particular but it is also a growing concern across Europe and beyond. I wonder, however, if the focus should really be on the “pension’s gap”.
The latest prompt for my thinking is the revelation, resulting from an analysis of UK Treasury figures, that £1 of every £7 spent by the government now goes on pensions. I am sure that figures elsewhere in Europe are similar, or will be very soon.
There are many ways that one could consider that data, as was seen across the UK national press. For instance, “The Mail on Sunday” noted that 41.9% of Britain’s total social security budget is now allocated to pensions – compared to, say, 10.3% on housing benefits – and that only £1 in every £9 is spent on education.
Given population growth and increases in longevity one could argue that this trend is only likely to continue – but is this a bad thing? The UK Department for Work and Pensions remarks that “people who have worked hard all their lives... deserve to be looked after in their retirement”.
On the other hand, many critics suggest that the older generations are being made better off at the expense of younger, working people and that many policymaking decisions on the issue do not match economic reality.
There are, arguably, two key aspects to the thinking and strategy on this. Firstly there is the “present day” problem – what is the correct balance at this stage – and then there is the debate about what is the best plan for the future. This is obviously a social policy issue and therefore a governmental problem; but, similar to the “advice gap”, it needs government, regulator and financial industry to work together, at least to address the private provision of retirement advice and savings.
In April of this year the UK Government brought in “pensions freedoms” – new legislation to allow people far greater access to their pension pots at retirement, and flexibility on what they do with these funds - which are, when all is said and done, their own money. There have been some interesting results that have so far been experienced. Generally, people have been responsible with this new-fond freedom, which is good news of course. In addition, and perhaps more importantly, we have seen far greater inflows of money into pensions from present savers.
In other words, if you make the “end product” more appealing, more people will be interested by, and engaged with it. I know, this is not really a surprise to our profession, or hopefully not, but it seems to have been a revelation to others!
Like the advice gap, the pension’s gap looks set to become a subject of continuing controversy and debate – and an arena in which public policy solutions are highly unlikely to be met with universal acclaim.
What happens to social policy, however, is down to our elected politicians, but we as an industry, in conjunction with governments and regulators, can dramatically help to assist with, motivate and generate, greater engagement by the populace in their own financial futures. We are all duty-bound to do this in my opinion.
Private provision of retirement savings has never been more important. Let’s make sure that we all help to address this global need.
FECIF’s annual conference takes place in Brussels in December and addresses the area of social welfare in times of economic stagnation. Specifically: can smart regulation stimulate private pensions? For more information on arguably the most important industry event of 2015 please see:
I would like to thank Ms Jennifer Howis at Nottingham University Business School. Her recent email both provided some of the above figures and also reminded me of my long-held views on the importance of retirement planning.