When you see young people signing up for Freetrade or one of the other low-cost trading platforms don’t despair, cheer. This is the engagement you dreamed of (though maybe not the type of it).
Rather, ask this question: how do we learn from this?
For that answer, I’m going to take you on a journey through my pensions. I’ve four from one employer: two pots of final salary, a substantial chunk of career average and then some DC.
Then I’ve got about £1,500 sitting in an old company pension from my first three years at a local paper. I’ve got a Sipp and I’ve got the DC scheme from my current employer.
I don’t think I’m particularly unique in having so many pensions, and such a diverse mix of pots, and of course, all this makes plotting a path to retirement a minefield.
On average most people will end up with nine pensions and ironically, while auto- enrolment has made things better in that people will get a pension the moment they start at a job, it has actually made everything worse.
Lots of pensions means lots of investments, yet so few people ever bother to engage with this money in the same way as they do with things like Freetrade.
You only need to look at pension statements to see why.
This an area where sensibly imposed regulation, or at the very least consensus from trustees and investment firms, could make life substantially better for savers and increase interest. If I look across the schemes I am invested in, I receive seven different pension statements at different times – even the two bits of DB from the same scheme seem unable to send a statement in the same week.
While some details are a requirement, many of the elements of each statement vary hugely and are meaningless.
The DC schemes for example tell you annual loss or gains, but not cumulative – which is surely the most important figure, and gives you a better picture of your direction of travel. It also helps stave off knee-jerk reactions to short term market fluctuations, the kind of which we saw at the start of first lockdown when lots of people received automated text messages about 10 per cent falls in their funds and did not have the complete picture.
Then you receive a projected income based on an annuity, despite the fact that the majority of people in a DC scheme these days don’t take one. There are never any details of what kind of annuity this is based on – which makes it an unhelpful comparison against any DB pots you may have.
Then while retirement income is projected, there is rarely any projected total pot size. You can see some schemes trying their best to make the language and design of pension statements more appealing, trying to put the most important numbers in the right places.
But really they need an overhaul and more focus on the long-term journey than the short-term.
The pension minister Guy Opperman wants an annual statement season, where all schemes send out their document in one short period of the year – which is not a bad idea, and would at least make it easy to get a true position of your retirement saving.
But really we need more than this. Statements should be simpler with more limited information, with savers encouraged as much as possible to go online and look at their savings. Which brings us back to Freetrade. The reason young people are so engaged with it is that its app is easy to understand, simple to use, and always at your fingertips.
Pension schemes need to learn from this and invest in technology, which means apps, not some clunky website or microsite that can only be accessed by your company intranet.
We need to accept that pension dashboards are not going to be the panacea that will boost engagement, because so many schemes will not be ready to flow in information, though open banking technology may be.
Rather your pension needs to be on your phone when you need it. People are interested in investing, but they want the information on their terms, not once a year in a letter they can’t understand.
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