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Compulsion may be the only choice for pensions

Compulsion may be the only choice for pensions

Monday’s Populus survey for the National Association of Pension Funds (NAPF) showed that 47% of those aged between eighteen and thirty-four would save more for their retirement if they knew how much state pension they would get.

Accordingly, the NAPF have stated that the reason for the lack of saving for the future with young people is that the government have failed to make it clear what level of state pension will be available in the future, so it’s their fault that nobody is saving.

This makes the government a handy scapegoat but, in truth, the connection between government clarity over state pension pay outs in thirty years time and the lack of urgency felt about savings by today’s young people is slightly tenuous.

To see what the survey is saying, you have to consider the likely basis for individuals answering the questions.  For a start, no matter how much the marketing companies try, the setting is completely artificial.  The respondents are asked a specific set of questions, which by their nature focus them on the issue in hand.

So while they answer truthfully, the comparison to real-life is false because nobody is going to ask people these questions in everyday life, with the result that they will never be forced to face up to the problem of providing for themselves in old age.

Perhaps a better extrapolation from the survey is that 47% of young people, when compelled to think about their old age, believe they should be saving more to provide for it.  Therefore what we need is not more information, but a means of making people face up to the realities around pension provision at an early stage in their life when it is possible for them to do something about it.

How can we arrange to compel the general population to consider their long-term future?  This is where auto-enrolment will play a big part as employees will be obliged to save or opt-out and this decision alone will make them consider both the cost of what they are doing and the cost of not doing it, based on the pension projections that will be provided to them as part of the process.

We have to hope that, once faced with this reality, the survey is correct and the 47% above will start saving.  Even then, according to the survey, it appears that 53% will be unconvinced.  This is too large a group to ignore.

The government is going to have to start thinking of a plan B; either saving for people with a genuine funded national insurance scheme to provide for the future or by accepting reality and abolishing the opt-out feature of the auto-enrolment plan and compelling people to save.  Sometimes, if you can’t convince people by argument, you have to force the required behavioural change by edict.

Tom Murray

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