Too many employees are still unaware of the importance of saving for retirement, says Helen McArthur, head of communications and engagement at Hymans Robertson
You will have heard the good news: as a nation, our health is improving and people are living longer.
Children born today have a strong chance of living to over 100 years old and life expectancy in the UK is improving all the time.
But with this fact comes the worrying reality that retirement saving plans and, more importantly, members’ attitudes to saving for the future, are not adapting in line with these developments.
Many young workers today have seen their parents and grandparents retiring early on final salary pensions and then living comfortably. But this type of pension scheme has declined significantly and many employees now only have access to a defined contribution pension scheme.
Average income difference
The average income from a defined contribution scheme is typically quoted at 24% compared with 66% from a final salary scheme. Retirement is starting to look very different.
The importance of saving for the future is still hugely underestimated by most people, particularly those aged under 35. Even those who are contributing tend to do so well below the levels required. So what is needed to change this mindset? How do we avoid the increasingly likely situation that our children and their children will be working to support an ageing population?
Well, good education goes without saying. Many people who should be saving for the future are not. But, as our Pension communications survey 2009 has shown, 80% of members who do not make retirement savings have a completely flawed reason for doing so. This demonstrates that understanding is still very low and retirement savings are not something people take seriously enough, mainly because it all seems a long way off.
To address the need for education, is there anything we can learn from the way environmental issues have moved up the agenda in the past decade?
Ten years ago, few people had a separate recycling bin, but now it is the norm. On a Saturday morning in Tesco, almost every customer will have a ‘bag for life’. This is quite a turnaround, so why the change in mindset? It is certainly not down to the government alone, or one organisation or lobby group.
Some organisations have certainly led the way with their environmental approach, and then many others have seen the benefits and followed suit. In fact, they are being forced to do so because there is an expectation from consumers. It has happened through the collaboration of all groups in response to consumer pressure. People have woken up to the harsh reality and now it is a trend that people are proud to be part of.
What we need to achieve for retirement savings in the UK is the same turnaround we have seen for green issues.
Of course there are the cynics who will say that these changes in attitude are not enough to make a real difference, but the counter argument is that every little will help. The same is certainly true of retirement savings.
Employees of all ages and particularly younger workers need to be woken up to the harsh reality and start to visualise the extreme poverty that awaits them in retirement. This is where all organisations can play a part.
Then younger staff are more likely to start jumping on the retirement savings bandwagon and thinking about their future. We need to get the bandwagon moving and put the brakes on the other inconvenient truth.
Read more articles from Thought leaders: The year ahead