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"And what about individual responsibility? Is it still not my fault Guv? Is my spending excessive? Are my spending habits no different to anybody else’s? The media tells me this is true."
Yet the bosses would say it was the fault of the workers, and the Prime Minister’s of the time were as economical with the truth as today. One (Harold Macmillan) told everyone they had never had it so good, yet I only had to look at how some of my classmates came to school to understand the poverty they were living in. Another (Harold Wilson) told us after devaluing sterling that the pound in our pockets was worth the same.
Move forward half a century and it’s still not my fault Guv. Life has got more complex and the world has become much smaller, so there are more groups to blame than just the bosses, the Government, and the workers, but for a lot of people, it’s still not my fault Guv.
In a financial planning context the savings and protection gaps are also someone else’s fault. Employers are providing less by way of retirement provision. Auto-enrolment has in recent years increased the number participating in pension schemes but it will be many years before any impact is made on retirement incomes. The Government wants individuals to be more self-standing and be more self-sufficient, yet this isn’t happening.
A recent Institute of Longevity report stated that to provide an adequate pension it is necessary to put aside at least 18% of earnings. Many employers who pay 8% of earnings into their employees’ pension scheme consider they provide a quality pension scheme. This means their employees need to find at least another 10% from their pay. In essence, it’s not going to happen.
Pension industry commentators say employers should pay more into pension schemes; employees spend too much on unnecessary things; and take on too much credit. It is everybody else’s fault. If employers pay more into pensions, there will not be so much available for pay increases. If pay is constrained how can employees find the additional contributions? You’ll sense a Catch-22 situation here.
And what about individual responsibility? Is it still not my fault Guv? Is my spending excessive? Are my spending habits no different to anybody else’s? The media tells me this is true.
Carry on like this and the gap between pension providers and their customers will become even greater. This is in no-one’s interests. I know, let’s get the Government to compulsorily increase the amount employers and employees are required to pay into pensions. Now there is a vote catcher if I ever saw one! Restrict employers’ ability to increase employees’ pay whilst taking more from that pay. I am sure voters will realise that it is in their long term interests!
A new approach to retirement funding is therefore required. If you have the time I suggest you read an article on Investopedia by Derek Hagan, entitled ‘I am a financial planner and I don’t care if you spend a fortune on lattes, here is what I do care about’. Essentially, the message is that we need to stop talking about giving up cups of coffee and putting the savings into a pension for a good retirement. We should also understand that everyone is different and therefore has different values.
The article distinguishes between good and bad spending. Good spending essentially is that you decide of your own volition; you decide because you get value, real or emotional, from the spending. Bad spending is that you are coerced into doing it, or spend because everyone else is spending on those things. Only the individual can determine what their good and bad spending is. The same applies in retirement.
Saving for retirement is about wealth creation. We need to change attitudes. Home-ownership is an important contributor to retirement living standards. Retirement with no rent to pay and no mortgage outstanding means less retirement income is required to ensure you have a roof over your head. If some of the value of the property you own can be used to supplement retirement income that is a bonus.
How many employees cash in their SAYE Share Option schemes when they mature? This could be an opportune time to build wealth for future using ISA allowances or additional pension contributions. Unless of course there is some good spending that has to be made.
What is this retirement people are expected to save for? More evidence is being produced that people do not want to fully retire, they enjoy work. However they must retire someday, very few can go on forever. If people can keep some active employment until they are 70 then the 18% pension saving requirement becomes much lower. Not all will be able to work part-time until that age though, in which case their wealth creation, aided by only making good spending, becomes their insurance.
This is when the holistic financial planner comes into their own. At the end of the day, we need to put people in control of their retirement. However if you are in control you cannot say ‘It’s not my fault Guv’.
