Savers at opposite ends of their working lives need certainty and we all need a functional pensions dashboard as soon as possible.
Time management enthusiasts (and readers of Christopher Hindle’s article on the New Model Adviser® website last year) will be familiar with the Eisenhower decision matrix, based on maxims from the eponymous US president. According to this theory, we should allocate our workload to separate categories, based on whether they are urgent or important.
‘Urgent’ means a task requires immediate attention. Urgent items need to be dealt with quickly but we should not spend too much time on them. ‘Important’ tasks are things that contribute to our long-term mission, values and goals. By dealing more efficiently with important tasks we should be able to avoid everything becoming urgent.
Eisenhower said: ‘What is important is seldom urgent and what is urgent is seldom important.’ I was reminded of this while ploughing through my considerable load of post-holiday reading, including the Treasury select committee’s report into household finances, and the Pensions and Lifetime Savings Association’s (PLSA’s) latest research on ‘Hitting the target – a vision for retirement.’
Important to take time…
Essentially the most important task for retirement policy is to address the saving gap. If we do not get this right, all the other issues facing pensions will be irrelevant. PLSA research found fewer than 50% of all savers are on track to achieve an adequate income in retirement. The situation is even worse among younger people, who are less likely to have defined benefit (DB) pensions. Only 3% of this group are estimated to be on track at the current time.
We – government, industry and regulators – therefore have to take time to look at it properly and stop relying on a continual series of quick fixes. Both papers refer to the questions of tax relief, and whether or not it acts as an incentive to save, which is what it should be intended to do.
However, the bigger problem is that we seem to be going around in circles on it. It is reasonable that it should be looked at perhaps once during each parliament but not each and every year. So long as the rules keep changing, savers cannot rely on their money receiving the same treatment when they come to retire, which stymies future planning and puts people off.
Solutions to the savings gap need to be considered before implementation, following a logical pattern such as the road map suggested by the PLSA. Auto-enrolment is going well so far, and building on existing success makes sense.
Introducing higher contribution levels too early may well have resulted in higher opt-out rates but the time is ripe to consider how increases might be encouraged. We need to explore how currently excluded groups can be brought to participate, whether via more legislation, improving standards within the industry or more consumer engagement and understanding (most likely all three).
…but urgent action is needed
The problems facing current retirees, however, are urgent, because there is no time to put things right once they go wrong. It is therefore right that we should assess the behaviour of retirees and try to identify any potentially harmful trends as soon as possible.
One of these is the propensity for people to use the pension freedoms to release tax-free lump sums and then leave the remainder of their fund in cash. Another is the increasing vulnerability to pension scams. Actions to address these issues, such as the cold-calling ban, should be put in place as soon as possible. It seems, however, we will not have to deal with a UK-wide Lamborghini shortage.
So far so good. It occurs to me there is also one issue that breaks the Eisenhower principle as it is both urgent and important: the pensions dashboard.
It is urgent because people are retiring, and divorcing, now without claiming previous pension entitlements. And it is important because people are much more likely to save if they can see their benefits building up over time and have confidence they are being looked after.
It is doubly unfortunate, therefore, that the dashboard appears to be a casualty of a government bogged down in the urgency of Brexit.
Fiona Tait is technical director at Intelligent Pensions