The UK’s blossoming savings culture is in danger of “fading away” unless pensions adapt to changing demographics and employment habits, a new whitepaper by Bravura predicts.
The whitepaper released this week, titled “Pensions and protection in the ‘nudge’ era”, warns that the government and pensions industry risk undoing the good work of auto-enrolment unless policy and products evolve to meet the needs of future generations.
The pensions system is already under huge stress caused in part by a sharp decrease in the working age population as well as a shift to more flexible working patterns, which are less suited to ‘nudge’ principles that are central to auto-enrolment, the paper argues.
Natanje Holt, retirement specialist at Bravura, said: “Research from the United Nations suggests that by 2050, we will live in a world where older people represent a far higher proportion of the global population and the percentage of the working age population will significantly decrease. While this global problem is well recognised, the myopic nature of governmental politics means that short-term interests – where pleasing constituents and voters is paramount – often prevail at the expense of real (and brave) long-term solutions, to plug the retirement savings gap. Without a radical approach, short-term bias will see policy makers nudge difficult, thorny pension problems a little further down the road.”
To ensure a savings culture in the UK is maintained, the whitepaper highlights some of the key challenges to overcome:
- Policy: The impact of successive governments’ tinkering with pensions policy to boost the national coffers is a constant challenge, increasing distrust and turning potential savers off long-term savings into pensions and driving up assets sitting in low-paying cash accounts.
- Engagement: With many consumers not willing or able to access financial advice as they retire, unlocking real choice and aiding better decisions through cheaper robo-advice or more accessible guidance is vital to ensure a better retirement for the majority.
- Self-employed: The nudge principles that have brought so many employed people into pension saving have not been utilised effectively with the self-employed. Tackling under-saving among these workers, especially within the ‘gig’ economy, should be a major focus of the government and providers alike.
- Technology: With the life and pensions sector traditionally hampered by legacy systems and a mindset focused on managing risk rather than digital innovation, the need for continuous technology investment, in partnership with a progressive pensions policy, is needed to secure better retirement outcomes.
Holt continues: “To compound these challenges, workers in the future will likely have to navigate choppier economic and political waters as they save. The gig economy brings income fluctuations and is less suited to nudge principles. Political uncertainty also makes it tough to predict how policy will evolve and whether pensions will continue to be a priority.”
“The worry is that the green shoots of a long-term savings culture nurtured by nudging might fade away unless we solve the engagement issue. While highlighting the potential obstacles that need to be overcome in this paper, we have also identified the numerous positive examples being set by other countries to improve retirement savings, such as Australia, New Zealand, South Africa and even here in the UK. Working with and learning from these countries will improve the global outlook for savings.”
The full whitepaper can be accessed here: https://bravurasolutions.com/insights/whitepapers-round-tables/