You Know How You Can’t Afford To Eat? You’re Not Saving Enough!

The head of the Financial Conduct Authority (FCA), Nikhil Rathi, has said that many Britons will face a looming savings shortfall when they retire, and that it is “vital” that this is addressed.

Mr Rathi said that there is a “window of opportunity” for us to save for our retirement before it is too late. He told the JP Morgan Pensions and Savings Symposium (sounds like a hoot) that “most of us are still not saving enough or engaging early enough with our pensions’ investments”, adding that “Whatever the route to improving this, and this is challenging as we come through a cost of living squeeze, addressing the adequacy of savings is vital.”

A void is being created due to the decline of defined-benefit schemes, which are mostly closed to future accruals, and have gradually been replaced by less generous defined-contribution schemes. There are worries that the proportion of people who only pay the minimum required into their pension scheme(s), whether under auto-enrolment or otherwise, and those who don’t have a workplace pension at all. Mr Rathi said “The defined-contribution system expects consumers to take greater personal responsibility. Pensions is, however, a market marked by inertia, a lack of consumer understanding and ridden by fear. Most people never switch funds, many do not take timely advice in the years or decades before retirement and half admit to being totally disengaged when it comes to pensions.”

Jeremy Hunt, the Chancellor of the Exchequer, is seeking to reform the pensions industry to address these problems. Last week’s budget announced measures to require defined-contribution and local government schemes to disclose their levels of international and UK investments, due to the broader debate of where schemes invest their funds, and that some are seriously underperforming.

Another budget announcement was the potential proposal of a “pot for life” where workers who switched jobs would contribute to one pension scheme throughout their career, rather than paying into a collection of smaller schemes as they change jobs.