How to build a financially resilient and literate society
—One of the greatest, though largely overlooked, achievements of the last Labour government was the introduction of automatic enrolment – an obligation on all employers to enrol staff earning above £9,440 a year into a pension scheme, and make a contribution to their pension pot. Its rollout began last year and will continue for the next six years until 11 million workers are eventually brought into pension saving.
But this is just a first step. The government has brought clarity by introducing a flat rate state pension of £144 a week from 2017. This will provide us each with around £7,000 a year to live on in retirement. But the next Labour government will have much more to do in order to pay for our ageing society. And the challenge cannot brook any further delay.
Auto-enrolment could be transformative but on its own it will not be enough to secure a comfortable retirement for most. People can opt out of auto-enrolment altogether, saving is not mandatory, and the minimum contribution level of eight per cent is still too low. In 1901 there were 10 people of working age to every one pensioner; in 2010 there were three people working to every pensioner. By 2050 it is expected the ratio will be just two to one. Saving more is not an option but a necessity. In Australia saving into a pension is compulsory; the same could happen in Britain within two decades.
But to get people to know how and where they should save, much more needs to be done to improve financial literacy. Following the recent retail distribution review, commissioned in response to fears of a culture of misselling, advice from independent financial advisers is not now generally free, and the cost of advice averages £670, meaning that low- and medium-earners can no longer afford to access full financial advice.
Progress has been made: Labour set up the Money Advice Service, known by its ‘talk to MA’ adverts, which works as a free hub for financial advice, and the government is also pursuing discussions with the financial services industry to develop a range of ‘simple products’ – financial products which will do what they say on the tin – which include a regular savings account and life insurance. But the scale of the problem demands, among other measures, a public advertising campaign akin to the anti-smoking publicity which took place from the 1990s onwards. Only with a fundamental shift in behaviour will we be sure of really averting this looming crisis.
Helen Gibson is a councillor in the London borough of Lewisham and works for the Association of British Insurers. She writes here in a personal capacity
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