Robert Cochran
Retirement Specialist.
"Everyone’s a winner if we all work together to plug the financial knowledge gap."
Back in January, the Prime Minister announced plans for school pupils in England to study some form of maths up until the age of 18. The idea, said Prime Minister Rishi Sunak, is to help tackle numeracy problems, prepare young people for the data-intensive jobs of today’s workplace, plus ensure youngsters will be in a better position to make financial decisions when they’re older.
This is, of course, a worthwhile pursuit. But there’s currently a serious shortfall in financial literacy among adults in the UK too. And it means potentially thousands of people could be risking their pension savings at a time when, according to the Pensions and Lifetime Savings Association, today’s retirees face living costs 20% higher than last year.
In fact, more than half of the people we surveyed as part of our latest Scottish Widows Retirement Report were concerned that their finances wouldn’t go far enough in retirement. And half said they did not feel they were preparing adequately enough either. So, what do adults in the UK need to do to make better informed decisions about their pensions?
The importance of financial education for all generations
Let’s face it, there’s nothing ‘cool’ about pensions – especially for young people. But whether we like it or not, they are an important financial safety net during old age. That’s why early financial education should start at home. Yet our recent research on protecting future finances found that parents aren’t talking to their children enough about financial matters.
More than half (57%) hadn’t spoken to their children about long-term financial planning for example, despite 69% feeling responsible for their children’s financial future. The thing is though, talking to young people about retirement can be just as valuable for adults – there’s a good chance they will learn something they didn’t know about their own pension.
By focusing on the basics, then – such as the importance of saving and the rewards it brings before going into more complicated concepts such as compound interest, adults are essentially reminding themselves of what they need to do to improve their own financial situation while at the same time ensuring their children will be able to make better decisions too.
It’s also worth noting that, for many elderly people, finding information about their pension can be overwhelming, especially as more and more digital tools become available. To that end, it can help enormously to have younger family members – whether their own children or grandchildren – around to talk them through their options, plus find the relevant information.
The Meet Your Future Self tool from Scottish Widows is one such digital tool that aims to strip the jargon and complications from pensions by replacing the numbers with images of your future self. The tool helps the user discover at what age the user can retire by asking how much they currently save, and what their ideal retirement income looks like. As many of us find our lives migrating online, user friendly interactive tools such as these will be crucial in reaching as many people as possible.
The importance of saving
For some, the benefits of saving may not be all that clear. And against the backdrop of rising living costs, it can feel as though money isn’t going as far as it should. Many people might not be aware, for example, that a pound saved into a workplace pension can double from day one thanks to employer contributions, compound interest and tax relief. Or that this investment is also excluded from capital gains tax too, which would usually take another 20%.
Financial institutions should highlight the benefits for retirees who save earlier in life. Letting people know that, while it’s never too late to start saving, a pound saved by someone in their twenties can bring four times as much buying power as a pound saved by someone in their fifties.
"A pound saved into a workplace pension can double from day one thanks to employer contributions, compound interest and tax relief."
Looking ahead
Just recently, the Martin Lewis Money Show Special saw the TV money expert spend 90 minutes explaining the basics around pensions. He even aged himself using an ageing app like ‘Meet Your Future Self’ and it was the most popular show on television in a prime evening slot, highlighting the fact that there is public appetite for understanding pensions better. Leading financial institutions in the UK pay a levy to the Money and Pensions Service (MaPS), which goes on to help fund financial education initiatives delivered by the UK Government.
These initiatives include the new digital ‘Mid-Life MOT’ – which Chancellor Jeremy Hunt confirmed at the Spring Budget will be introduced to help older workers plan around work, wellbeing, and money – plus a retirement planning hub that will incorporate the much needed Pensions Dashboard when it’s eventually launched. Auto-enrolment has been a real game changer, helping to boost workplace pensions participation from around 30-40% in 2012 to a staggering 90% today.
So, with the success of auto-enrolment meaning that the majority of eligible employees are in a workplace pension and new plans to lower the age of auto-enrolment to 18, the very age when young people will be finishing their maths training under Rishi’s plans – the time is ripe to encourage open discussions across the generations around all kinds of financial matters. Everyone’s a winner if we all work together to plug the financial knowledge gap.