Articles - A new system for a new culture


The world is changing. People are living longer and retiring later; one in three babies born in 2017 are now expected to live to their 100th birthday. In order to fund this, the Government is steadily pushing the state pension age higher. There is also a growing culture of part-time and flexible workers, bringing its own set of challenges from a saving and retirement perspective.

 Lydia Fearn, Head of Defined Contribution at Redington
 
 The meteoric rise of this gig economy, which was examined in some detail last month in the Taylor review, shows the cracks in our current system. Fewer people are choosing a traditional nine to five career, with many more people opting for flexible or freelance work.

 As a result, many workers are having to manage not just fluctuating incomes, but also varied levels of savings. Yet despite acknowledging this shift in culture, we haven’t yet evolved our savings system to adapt to new needs. More fragmented lifestyles mean employees need a system able to balance not just savings, but also wellbeing and future projections.

 To cater for this, we need administrative systems to be able to keep up with the reality of the way workers manage their money. This means evolution to cope with the peaks and troughs in income and expenditure, caused by less consistent working patterns.

 Currently, the odds are stacked against the average employer to sufficiently support an employee’s retirement needs. The traditional model of a final salary pension, where an employer simply pays money into a pension scheme on an employee’s behalf with no requirement on the employer to engage, is all but dead. Auto-enrolment has boosted the number of people saving, but current contribution levels are too low to guarantee adequate pension pots in retirement. Nor can they rely on the state pension: not only is the basic weekly amount too low but the Government also recently made the decision to accelerate the planned increase in the state pension age to 68. Unfortunately, this looks set to be an upward trend as the government looks to reduce its pension liabilities.

 So, what can the Government and the pensions industry do? We need to recognise the changes happening in the world of work and create an ecosystem that supports both the short term and long-term savings habits of the population.

 The new gig economy needs to be underpinned by innovative approaches. Possible solutions could include creating payment software which automatically transfers money directly to a pension or other savings vehicles. Equally, other measures such as allowing part-time and flexible shift workers to adjust their contributions in real-time based on their income could help them to build a nest egg for retirement while allowing them to survive financially in the short term.

 It is crucial that we encourage the right kind of behaviours to make it easy for people to get into the habit of saving. Given that we are expecting the next generation to take responsibility for their finances, we have an equal responsibility to make sure we are instilling the right behaviours. While this may seem a tall order, if we look elsewhere in our environment, we can see how small but measurable changes can transform behaviour. For instance, recycling according to different coloured bins is now second nature for many schoolchildren, whereas ten years ago it wasn’t even a solution.

 With the world changing at such a fast pace, it is essential we equip the next generation to cope with the ebbs and flows of a more flexible way of living and working. However, we need to create the right culture and infrastructure if we are to do this effectively.

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