It is rare I find myself listening to professionals in the financial services industry talk about people in my own age bracket – unless I ask them questions in interviews that steer them that way, of course.
But even then, it is often, ‘We should be doing this’, not, ‘We are doing this’.
That feeling was really brought to life this month sitting in on a work and pensions committee meeting where Guy Opperman said pension nudges should start as early as in people’s 20s.
It sounded great, I thought. So many of my friends do not have access to a pension through their workplace, and they do not know what a self-invested personal pension is.
But once Opperman went into more detail, it was clear the state was still focused on “extensive piloting” of pension nudges for those between 45 and 50. His department started these pilots back in 2018.
The 20s age bracket he so brazenly referenced at the beginning suddenly seemed incredibly far off in reality. If it has taken four years for the state to test pension nudges for half of all the UK’s 40-year-olds, by my calculations 20-somethings will not receive any of the state’s attention until – at the earliest – 2038.
If the Department for Work and Pensions rolled out a pension nudge to 20-somethings as quickly as its boss went back on his resignation this month, the government could just as easily help thousands of people save millions over decades as it helped one individual save a £35,000 annual salary bump in 24 hours.
Be afraid
A single push notification explaining how much you would have to live on each month with a state pension alone is one simple way you can get across the importance of financial planning.
If my housemate, a freelancer with no personal or workplace pension, knew she would have to live on just £185.15 a week with only a state pension to her name when she retires, she would be horrified.
Showing people how hard their lives could be if they do not start saving now is the best way to encourage younger generations to engage with financial planning early on.
It would also make them think twice about renting all their lives, as myself and many of my peers see the future going against the backdrop of frankly unfathomable prices.
If people understand in their 20s that they will not be able to afford to pay rent come their 60s, then they will feel far more incentivised to save for a deposit and pay off their mortgage before they retire.
Even for those in their 20s who do have a workplace pension, most are not clear on how much is in it, how much they put in, and where it sits. That is of course assuming they even know they have one – many of my friends do not.
The advent of auto enrolment – while great in many respects – has encouraged a lot of companies to get rid of their designated pension advisers, causing workplace pensions to become incredibly opaque.
A lack of exposure
When I joined the workforce in 2017, my employer’s pensions adviser was the first exposure I had ever had to how a pension worked.
I remember asking a subsequent employer in an induction if I could choose the level of risk my pension investments were in, to which I received as disgusted a frown as if I had just asked if I could lie naked on the meeting room table.
If the DWP worked with UK banks, this could give it an easy-access platform through which to push this pension notification into someone’s hands.
It does not have to recommend a product. All it has to do is lay out the simple facts and lead people to more information.
Something like: 'Could you live on the £185.15-a-week state pension once you retire? If you couldn’t, here’s what you need to know.' People can then make up their minds as to whether they will act or not.
The DWP is currently in the midst of an ongoing digital transformation programme that has been operating under the name ‘DWP Digital’. Investing in digital seems like a great place to start.
But the focus of the project is on improving the experience of some 20mn UK adults who use the department's services each year – that is, those old enough to access their state pension.
The same goes for the department’s efforts to solve pension underpayments, a bill which now sits at £1.35bn. Around 510 civil servants are working on this project, which is endeavouring to compensate those – mainly women – who have not been paid as much as they should have been.
While these projects are essential in nature, it feels like our government’s pension department will spend decades on solving the errors of the past and dedicate very few resources to trying to avoid the potential errors of the future.
ruby.hinchliffe@ft.com
