Closing the savings gap: a big ask for any industry
It is widely believed that there is a savings gap in the UK, with respected firms voicing concerns that the general population faces hardship in retirement by failing to make adequate savings provision. GfK’s August Savings Index saw its sharpest month-on-month fall in people’s desire to save money – the biggest drop in its 20 year history.[1] Meanwhile, a Q4 2015 survey by Deloitte estimates that the savings gap could rise to £350bn by 2050, representing a shortfall of £10,000 per year per individual.[2]
To explore this issue, MRM gathered together a group of key experts from across the industry, who considered the role of the workplace in improving this state of affairs together with the industry’s ability to meet this growing crisis. Rightly or wrongly, the workplace is regarded as a key battleground for solving the issue of the savings gap. You can read the full report here.
Mindful of the looming crisis, recent governments have placed pensions and savings high on their list of priorities. This has led to much policy change in the space, with auto-enrolment introduced from 2012, the pension freedoms coming into force in April 2015 and a new flat rate state pension in an attempt to simplify the notoriously complex model. But, while these changes are commendable, they don’t appear to have changed habits enough to reverse the trend of declining savings. The general public is simply not saving enough.
For John Cowan, Executive Chairman of Sesame Bankhall Group, this is where the crux of the problem lies. His proposed solution is a radical one.
“We need to make it mandatory to save. After all it is mandatory to pay your taxes so it should be mandatory to save. People need to understand that they have a problem and they need to start saving. But unfortunately we’ve got a culture where people would rather spend the money now than save for the future.”
Katharine Photiou, Head of Workplace Savings – Product and Proposition at Legal and General agrees, but emphasises the positive effects reducing the savings gap can have on personal wellbeing, suggesting it is a wider reaching issue than simply a lack of saving.
“For me, closing the savings gap or increasing the amount people save can have a direct benefit on the well-being for the UK society as a whole. I think we can employ behavioural finance techniques to solve some of those problems.”
As the custodian of the nation’s pension schemes, much of the responsibility for their smooth running has fallen to the pensions industry and its regulator, The Pensions Regulator. Those in the industry have to ensure that these reforms can nestle comfortably amongst existing legislation. However, they also need to find effective strategies for engaging with hundreds of thousands of scheme members, many of whom are entering the world of pensions for the first time.
For Gary Smith, Head of DC Consulting at Capital Employee Benefits, this introduces another layer of complexity, as reaching out to hitherto untested swathes of the population.
“Engagement was always an issue even with people voluntarily joining schemes, and we’ve got huge waves of people being enrolled who haven’t made that decision.”
It is of course crucial for the pensions and savings industry that the level of savings in the country increases – its very future depends on it. But it is a far-reaching problem, one that clearly requires the cooperation of numerous bodies, as well as individuals themselves.
Gregg McClymont, Head of Retirement Savings at Aberdeen Asset Management also believes more need to be done to support the employer, particularly smaller ones who are likely to have limited resources available to them.
“We also need to differentiate between large employers who will be investing lots in engagement and smaller employers, which make up a large proportion of the workforce. Many of these might not have an HR department, or EBCs, for instance and that makes driving engagement difficult.“
Henry Tapper, Founder of Pensions Playpen, thinks cost is a big concern for employers.
“Employers are really worried about the cost of auto-enrolment in relation to their payroll systems. Most of the money that’s being salvaged at the moment by providers, advisers and intermediaries is centred on getting the interface between the employer and the payroll right.”
So what is the role for the pensions industry in closing the gap – is it doing enough or should it be working more collaboratively with employers and the Government for instance? There is plenty it can do to educate, engage and communicate with those enrolled in its schemes, and harness technology to make savings for more user-friendly.
Kirsty Worgan, Business Development EMEA at Bravura Solutions is optimistic that technology can help plug the gap. “If you look at it from a purely technological perspective, we can build whatever we want to build nowadays.”
For her though, making effective use of technology is dependent on increasing its simplicity.
“I can’t get over the fact that when people want to engage and buy something within financial services, it’s just very difficult for them to do and it needs to be much quicker.”
However you look at it, the reasons for the savings gap – among them inertia and lack of trust created by Government tinkering – are complex and deeply entrenched in the British psyche. While the workplace savings industry does have a key role to play in closing the gap, others, including the Government, employers and even individuals, must all play their part. It is simply too big an ask of any industry to solve these problems alone.
[1] http://www.gfk.com/fileadmin/user_upload/dyna_content/GB/documents/Press_Releases/2016/GfK_August_2016_Consumer_Confidence_FV_August_31st_2016.pdf
[2] [2] http://www2.deloitte.com/uk/en/pages/press-releases/articles/uk-savings-gap-to-reach-350b-by-2050.html