Case study: The £70-a-week experience
One of those who undertook the £70 challenge was Greg Kingston, head of marketing at Suffolk Life, part of the Legal and General group. Working for a pensions company, Kingston is already an evangelist for saving, but wanted to experience living on a basic state pension.
“I survived pretty comfortably,” he says. “I didn’t just feed myself, but my partner too. There were some implications, though. I had to switch to different brands and had to virtually eliminate all alcohol. The £3.49 bottle of red wine I bought was so bad, I didn’t even finish it.”
Despite his success, Kingston was keenly aware any privation was short term and would end in a week. “I was struck by how crushing it would feel to know that if this was for real, this would be the best it got for the rest of my life,” he says.
“It is a very powerful motivator to ensure you don’t end up in that position and, though I’m pretty sensible with money anyway, I did review my savings at the end of that week and have now increased them.”
Kingston blogged about his experiences on Citywire, and was shocked by comments from those in better financial situations lecturing him on what to do in that situation.
“That’s the biggest point I’ve learned from the exercise: the loss of control I would face in that position,” he says. “I’d have benefit agencies telling me how to claim more money, charities telling me how to save money, friends telling me what to do, retailers forcing me to shop on certain days because that’s when they offer pensioner discounts.
“Suddenly so many decisions are being made for me, and all that would be left for me would be to survive day to day. A horrific thought.”
Pensions giant Legal and General gave some of its employees a salutary lesson on the need to save for retirement by making them live on just £70 for a week, says Padraig Floyd
Most organisations seeking to engage with staff on pensions will explain the benefits of saving for the future and offer gentle suggestions on how to achieve it.
But Legal and General has hit on a novel method of engagement by getting dozens of workers to live on a pensioner’s budget, surviving on just £70 for one week.
So why would one of the UK’s biggest pension providers want a new way to communicate a message that is part of its bread-and-butter work with clients?
“The majority of our people are already in the company pension,” explains Rosemary Lemon, group head of reward and executive remuneration. “But people find pensions difficult and we didn’t want to just introduce a new process. We wanted them to think about the life they would like to lead in retirement and how much money they would need to do that. If we brought the subject alive, it would help engagement and get people thinking about pensions.”
Although auto-enrolment will bring many millions of people into pensions for the first time, saving the bare minimum will not deliver meaningful returns to live on in retirement. So, the experiment, run in partnership with Age UK, was designed to challenge expectations about retirement and force staff to take more responsibility about their future needs.
The £70 is a figure calculated by the charity that strips out costs associated with rent, utilities and travel from the basic state pension, currently £107.45 a week. The £70 would have to cover food and all social entertainment for a period of seven days from 30 June, says Lemon.
“That means all food and drink, including any alcohol, clothing, household goods and services, toiletries, non-prescription drugs, and so on. If you were on the basic state pension, this amount would also have to cover saving for, say, holidays or emergencies. Part of the challenge is to see if you have anything left at the end of the week.”
From the start, participants had to agree not to cheat by engineering dinner invitations or to simply bypass the budget, but they were also instructed not to skimp on food. “We wanted people to eat three meals a day,” says Lemon, “because the elderly often sacrifice food for heat. It would show just how hard the basic state pension is to live on.”
Before starting the experiment, each employee was asked to explain their reasons for taking part. Their answers ranged from the challenge itself to empathising with friends, family and customers who are living on state benefits.
They were also asked to say what kind of lifestyle they expected in retirement. Many said spending time with family and grandchildren, but others aimed to concentrate on hobbies, travel or even starting a business.
Initially, Lemon had 170 volunteers, and ended up with 137 taking part. But with only £10 a day to cover their needs, how did they get on?
In fact they did really well, says Lemon, with almost 95% completing the challenge. And all this despite some rather underhand actions from the organisers.
“Half-way through the challenge, we sent out an email saying a power cut had ruined the perishable foodstuffs, reducing the budget by £3,” she says. “What would normally be a nuisance was a great inconvenience, particularly for one individual, who then had only £1 to last the rest of the week.”
Caren Drake, new business manager, corporate partnerships at Age UK, also took part in the challenge and admits she found it “very difficult”.
“I spend every day thinking about the needs of older people as I work in corporate fundraising and believe I have a good insight into how later life is for older people,” she says. “But I had to put myself into the mindset of someone surviving on this budget.
“It is a completely different experience and is more about what you can’t do: small things, like going out for drinks or dinner. As a result, I felt deprived and left out and purposely withdrew from social settings.”
Lack of variety in the diet was another problem for participants, and one said: “How difficult it is for elderly people to eat healthily and varied food while still trying to save and have some sort of a social life.”
Most felt the lack of choice was the biggest single deprivation they faced and one they would find hard to deal with. Another participant said: “You can live fairly cheaply with a lot of forethought and planning, but your quality of life will be affected. I found I didn’t socialise and became quite lonely after a week.”
It was apparent to all participants that living on such a small budget was very hard to do, but they acknowledged many of their friends, family and peers believed they would do just that in retirement.
For many, the experiment had a profound effect on their attitude to saving, with 55% saying they would adjust their current retirement plans. It also encouraged some to raise the issue of saving with their families to encourage them to plan more for the future.
The experiment was only the start of a series of campaigns by Legal and General to drive up understanding of the role benefits can play in an employee’s life, says Lemon. She has recently finished a major project to raise awareness of tax-efficient savings following the maturity of the firm’s save as you earn (SAYE) scheme.
“The three-year scheme matured with the current share price around three times the option price of 35p,” she says. “So people were getting sums similar to the value of their salaries and many didn’t have any idea about capital gains liabilities, about the benefit of putting it into an Isa (individual savings account), or transferring to a spouse.”
Lemon says the feedback on social exclusion and loneliness from the experiment will be useful for the work she is doing on health and wellbeing. “We are looking at how to improve preventative measures that will keep people fit and at work. So we are doing work with Sane and Mind on how to recognise stress and to explain just what mental illness is.”
The full results of the experiment will not be known for some months, as Lemon’s department has to collate all the diaries, meal plans and blogs. They will also be monitoring whether participants change their workplace savings plans.
“The experiment has been really well received,” says Lemon, “and encouraged our employees to reappraise their expectations of income in retirement. There is already considerable interest from those who could not participate this time in repeating the challenge next year.”
The pension scheme
Legal and General already offers an auto-enrolment compliant pension scheme with very high take-up.
There is a basic employer contribution of 5% and staff who also contribute 5% will receive a further employer match, making a total contribution of 15%.Manager grades receive a 10% basic employer contribution, so with a 5% employee contribution, they can receive up to 20%.
The plan operates a salary sacrifice arrangement and the company ploughs back 90% of its national insurance savings into the scheme.The company wanted to learn how it could improve communications for its own internal purposes and how they might be applied in its pensions business.
A total of 137 Legal and General staff took part in the £70-a-week challenge and their reasons included: to understand their customers’ position better; to empathise with pensioner relatives; to help with their financial budgeting; and to assist Age UK.
Most wanted to retire between the ages of 55 and 65, but many realised it was likely to be later. Targeted pursuits for retirement included spending time with family, hobbies, starting a business and travelling the world.
Some managed to eat healthily during the experiment, but most found their diet bland or lacking in variety. Some changed brands to save money and discovered good or better products. Others found buying in bulk could be unwise and said buying small amounts of better-quality products was preferable.
Careful planning of meals was essential to make food last, say the participants. They could not afford spontaneous spending, which many found depressing.
Legal and General donated £70 to Age UK for each employee who successfully completed the exercise and matched any additional sponsorship raised. At the time of writing, the total raised was about £15,000, which will go towards a benefits bus to take Age UK advisers to pensioners to advise on benefits available to them.
Read more articles from the Workplace Savings Quarterly