As a young person living in London, I find saving difficult. My finances already carry out an impressive feat of gymnastics to ensure I can pay for astronomical rent as well as the luxury of buying food. Add to this the ultimate aspiration of owning a house, and it’s no wonder that saving for retirement slips way down the list of financial priorities.
Why does this happen? Buying a home and retiring are two key financial milestones in our lives – both give financial freedom and both are the culmination of hard work – so why do we talk about them so differently?
Bricks and mortar vs a retirement dream
In many ways, saving for retirement is a tough sell. A house is made of bricks and mortar – something you can see and touch. When you think about what it means to be a homeowner, you think of financial freedom and a place to call your own.
That isn’t how we typically think about retirement, if we think about retirement at all. While some people may have a vague idea of what their retirement will look like, many of us see retirement as something that happens to us but that’s far down the line. Retirement is a problem for our future self and not something to prepare for now.
Would it help if we asked people simple questions to make retirement more of a reality? Will they want a holiday every year, will they still need to keep a car, will they have grandchildren they’d like to spoil?
Let’s get optimistic about pensions
It doesn’t help that we speak two different languages when it comes to talking about saving for retirement and saving for a house.
An example of this is the phrase ‘salary sacrifice pension scheme’ – this sounds pretty scary, like something designed to take something away from you. All it means is setting aside some of your salary to put into your pension for your own benefit further down the line – which doesn’t sound like a bad idea. If you label something in a scary way, chances are, people will find the idea off-putting.
Compare this to the ‘help to buy ISA’, – it does what it says on the tin and sounds like a positive thing. It literally helps you save to buy. While the principle isn’t vastly different – put something extra away for your future benefit – it shows that how we frame saving is important.
Add to this the scare tactics sometimes used to entice people to put more in their pension. We’ve all seen articles with headlines like ‘millennials need £80k more in retirement than their grandparents’. Some annual pension statements even remind you how far you have yet to go with endless caveats around investment performance. If failure seems inevitable, it’s not surprising that people can just give up.
Get people talking about pensions
There is an abundance of information out there for first time buyers: mortgage calculators, guides to the many different kinds of investments that can help you save to buy and even TV programmes about buying. We need to make pensions as accessible.
While there probably won’t be a “Location, Location, Location” equivalent TV show for pension schemes, simple things like explaining ‘pension language’ – such as glidepaths and annuities – could go a long way to making pensions more accessible and increasing the level of conversation around retirement.
Having all pension information in one easy to access place, like a bank account where you can regularly check the state of your pension, or even a pensions dashboard could go a long way in improving how people engage with their pension.
Show people that saving for retirement can be rewarding too
If there’s anything that we can learn from the recent boom in financial wellbeing apps and fintech, it’s that people in the UK are willing to think about their financial wellbeing.
There’s no reason why people can’t view saving for a comfortable retirement in the same way. After all, retirement is the culmination of many decades of hard work, not the end of the road.
The views and opinions expressed in this blog are solely those of the original author and do not necessarily represent those of Smart Pension Limited or the Smart Pension Master Trust.
Launched in 2015, Smart Pension exceeds £4bn in assets under management (AUM) and now serves over one million members and more than 70,000 employers. It is powered by Keystone, Smart’s global savings and investments technology platform.
Aquiline Capital Partners, Barclays, Chrysalis Investments, DWS Group, Fidelity International Strategic Ventures, J.P. Morgan, Legal & General Investment Management, Link Group and Natixis Investment Managers are all investors in Smart Pension.