We don’t need awareness, we need understanding
By Jim Poulter on Tuesday, 15 September 2020
Without being rude, what really is the point of Pensions Awareness day? In almost every focus group or piece of research I’ve seen over the last 30 years – awareness that there are things called pensions is not low. What’s low is any kind of understanding of how they work and what you need to do to stay on top of yours. Actually, it’s not low….it’s non-existent.
Until it’s too late.
Because by the time your wake up pack lands on the doormat you have just a few months before your planned retirement date. By that point, if the pot is too small, you only have a few options:
- Work longer
- Win the lottery
- Rob a bank
But awareness is not understanding. The shift from of defined benefits, where the employer has all the risk (and golly, do they know it), to defined contribution, where the employee has all the risk (and have NFI) has been rapid and unnoticed by almost anybody under about 50. If I ask around TS towers (or Zoom around TS towers these days) how many people know what’s in their pension – just 3 or 4 admit to knowing anything. It’s like being back in school, when being shit at maths was seen as a good thing. Everyone knows the value of their paycheck, but not the value of their pension.
And I’m not asking for huge levels of expertise. No, what I want is for everybody of working to age to understand just 3 things:
- That the more you pay in and the more risk you take in the early years the better
- That you are building a pot that will need to last up to 30 years
- That it’s your current account of the future so you need to treat it like one – and check it regularly
I think everything else – tax rules, whether or not you take advice, what you invest in, pales into insignificance.
Disclaimer – I am not regulated to give financial advice – so treat this as unregulated common sense