When you think about the average person, busy with work and family commitments, it’s unlikely that many could honestly say they regularly monitor the financial pages or think about their future nest eggs or even current savings. Indeed, only 50% of workers are saving for their retirement, and despite the great strides made by automatic enrolment, there is still concern that a whole generation is not saving enough.
Instead of leaving people to their own devices, we believe the question really should be: how can the nation engage with their finances in a more productive way and what can the financial industry do to support this? Advisers undoubtedly play an important role in improving engagement, but as a sector on its own is unlikely to be able to encourage millions of people to change their financial habits.
Before drawing conclusions, it’s helpful to first remind ourselves of who we need to target and the main challenges in engaging with these people.
There are two key generations that we need to be thinking about – the first in terms of getting them saving into their pension, and the second in terms of immediate planning for retirement – but each have different attitudes and needs.
The generation that needs support to help with focusing on saving now is millennials. We appear obsessed as a nation with millennials - but with good reason. Making up almost 14% of the population and, with the oldest now approaching their late thirties, it’s crucial they are thinking about their future and putting money into a pension. However, they do face more financial pressures than older generations. Student loan repayments, rising rents and household bills significantly reduce their spending power and present real barriers to saving for the future. Furthermore, Cambridge University and BNY Mellon found that millennials face considerably greater challenges than their parents when it comes to providing for their retirement. They state a lack of financial knowledge as a major issue - 90% admit they were guessing what size their pension pot should be. Overcoming millennial’s financial pressures and lack of knowledge will be a key challenge for engaging with them.
However,it’s the Baby Boomers approaching retirement that need the most immediate support. Shockingly figures confirm that 42% of 54-59 year old Baby Boomers can’t even approximate their future retirement income and, sadly, 31% of all Boomers have never actively financially planned for their retirement, even though a third of them are already over 65. Only one in six Baby Boomers (17%) know exactly what retirement income to expect when they retire. It’s possible this generation is burying its head in the sand to a certain extent, but there is also a clear lack of knowledge and understanding also. Baby Boomers are desperate for support and help to guide them through the next few years, but we know many are reticent to take financial advice which is the best way to ensure they make the right decisions for them.
Besides this lack of knowledge, the challenges to engaging people with their finances, let alone their pensions, are multiple.
Financial planning is a complex subject, which can deter people from even trying to understand it, and retirement can seem a very long way off for people so often people don’t see the point in thinking about it until they are too close to really make a difference. As we’ve already identified, there is also a major issue in terms of other financial pressures that people are facing – particularly younger generations – and as a nation and financial services industry we need to accept that people will sometimes need to prioritise spending in the here and now over saving for the long term.
There is also a very real challenge in terms of the pensions gender gap and how to engage more women with their finances. Recent figures show that the gender pension gap is almost 40% and 52% of women have never held an investment product, compared to 37% of men.
If we are to engage all generations and genders in pension and retirement planning, we need a multifaceted approach from the industry but also government and employers. We think this should include:
It’s evident that the dry style of communication adopted by the pensions industry to date has not been effective in reaching the target audiences. We need to think differently about engaging and relevant ways of connecting. Cambridge University research states that most millennials want financial services providers to be brutally honest with them about the bleak future they will face if they do nothing to build an adequate retirement income.
Established advice businesses, advice firms and advisers have the opportunity to use social media and online mediums to reach millennials and younger generations in order to drive awareness, understanding and a deeper brand connection before it’s too late. But it requires a new way of thinking and crafting messages that resonate with users.
It’s clear that every generation is receptive to digital solutions and this can make advice more accessible to all. In fact, we are starting to hear the view that people tend to be more trusting of a hybrid combination of technology and human decision-making when it comes to financial matters, with technology providing the facts and the human element the emotional aspirations.It’s natural progression for all generations who are now used to online solutions for their everyday life.
The government has to step up when it comes to education and it would be nice to see mandatory financial education for schools. Despite a nod to finances in the existing curriculum, parents in the UK do not believe schools do enough to equip pupils with personal finance skills. Half of parents polled (54%) in a study want more time devoted to the subject and were happy to reduce the time spent on national curriculum subjects to achieve this.
Employers possibly have the most power when it comes to educating the nation. Great progress has been made with automatic enrolment, but this has now led to many people turning to their employer to help with retirement planning and too often there is a lack of information and education within the workplace. Wealth Wizards’ ‘Working Late Report’ found that 49% of respondents aged over 55 agree that employers should be required to ensure the financial stability of their employees in retirement. This increases to 59% amongst those aged between 18 and 34. Yet 25% of employees state that their employer does not offer financial education and they would like the company to do so.
Advisers need to think of new ways to connect deeply with employers and thereby provide them with the tools and support to help educate their employees. And there is a clear benefit for employers also - financial worries are a significant trigger for mental health problems, which are estimated to cost UK employers up to £42bn per year (Mental Health and Employers: The Case for investment, Deloitte 2017). According to a report, 1 in 6 people have suffered mental health issues as a direct consequence of financial worries (Scottish Widows Retirement Report 2017).
With time running out, we think we need a nationwide campaign designed to foster a new culture of savings with a focus on retirement. We are in a world where collaboration between industries, companies and across the private and public sector divide is now regarded as a successful way of reaching and influencing societies. Together we could build a bigger brand around ‘financial wellness’ resulting in a multi-faceted campaign able to reach all of our target audiences on many levels.
Engagement is avast topic and it’s difficult to put arms around the whole situation, where it starts and ends and who is responsible. However, as Baby Boomers race towards retirement, and millennials risk becoming the Lost Generation when it comes to retirement planning, we have a duty as individual advisers and advice firms to drive deeper engagement by thinking out of the box about how we make advice less of an add-on and more of an essential. We need to normalise advice and financial check-ups in the same way that people visit the dentist for a check-up, the gym or a regular exercise class. Let’s work together to make financial wellness a priority.
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