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30 Sep 2021

Financial exclusion and how employers can break the cycle for good

Have you heard of the planning fallacy? It’s a cognitive bias (mental shortcut) that means we underestimate the time needed to complete a future task. Is the planning fallacy to blame for so many of us leaving retirement preparation until it’s too late?

 

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It's understandable, there's lots to save for in life, and the end of work always seems far in the future. The truth is, we need to help people to realise that retirement planning should start on their first working day, and be a priority throughout working life, so everyone can live comfortably and without financial anxiety.

The UK’s pension landscape

Our recent global financial wellbeing report, Disrupting money habits, surveyed 11,500 people across the world on their attitudes, behaviours and experiences with money. The data depicts the planning fallacy perfectly.

In the UK, 71% of people have, ‘complete confidence in my ability to improve my own financial situation’. Yet 47% of people have no confidence that they’ll have enough money saved for retirement.

Hang on – how does that make sense? Being contradictory, these statistics show that something doesn’t add up when it comes to retirement planning (a bit like the contributions themselves!).

The OECD recently labelled the UK’s state pension as one of the worst in the developed world. For example, at the age of 68, people with 35 years of National Insurance (NI) contributions qualify for £9,339 a year in state pension. For most of us, that’s not a lot of money to live off. How on earth will you live and spoil your grandchildren on £179 per week?

Furthermore, the financial world is volatile so with state pensions being paid out of current taxation, they’re prone to the same vagaries as the underlying taxes themselves. Increasing life expectancy and rising retirement ages compound the risks that come from these shifting sands. In 20 years’ time, pensions are unlikely to exist in the same way they do today.

The health and social care levy (a 1.25% increase in NI and dividend tax) announcement demonstrates the fickle nature of taxation. The well-publicised ‘U-turn’ just goes to show that politicians sometimes change their minds, so we can’t rely on them to give us a comfortable financial future – we need to create our own.

The savings reality

Digging into that ‘47% of people have no confidence that they’ll have enough saved for retirement’ statistic, the detail is perhaps unsurprising considering what we know about the pensions gap.

It comes as no surprise that women are more worried about their pensions (55% lack confidence) compared to men (38%). And this lack of confidence widens when people reach 35-54 years (57% lack pension confidence) because as time goes on, times runs out, then panic sets in. The reality is, the longer you leave it, the more you’ll have to sacrifice when you’re older – either in terms of lifestyle or savings.

Like women, there are some communities: Mixed descent – White and Black Caribbean (57% lack confidence), Asian – Indian (57% lack confidence) and Black – Caribbean (59% lack confidence) who show more concern over their retirement savings.

People shouldn’t feel like other life goals can or should take priority over pensions, and it certainly shouldn’t be dictated by salary. But, our research suggests otherwise with only 47% of low income households feeling confident they have enough saved for retirement versus 67% of high income households.

When it comes to life goals, 48% of us dream about being comfortable in retirement, and that’s more so by men (49%) than women (46%). It’s interesting that women lack pension confidence (55% versus 38%) yet they don’t seem to prioritise their retirement. Could this be the crux of the issue? It seems women need financial coaching and guidance to navigate the financially uncertain stages of life.

Breaking down financial barriers

My belief is that everyone, regardless of who they are, should get access to unbiased financial education. UNESCO have long campaigned that literacy is a human right, but I argue that this needs to include financial literacy too. Only then can people understand how best to prioritise saving for life after work, in a way that works for them and their circumstances. It’s not just about retirement, it’s got to be about the bigger financial picture and ways to improve financial wellbeing holistically. Then money management becomes easier, saving becomes easier, and life becomes easier.

Too many of us are worried about our financial position – our research found that 37% of UK people feel anxiety about their current financial situation. Again, financial anxiety is more prevalent in women (45%). The question is – how can we create more inclusive pension programmes to eliminate anxiety, grow confidence and make retirement a prioritised financial goal for everyone?

The first step is to break down and understand the disparate financial needs, habits and behaviours of your workforce. With this insight, you can design an inclusive financial wellbeing strategy and break cycles of exclusion for good.

Get the insight you need in ‘Disrupting money habits’ – so together we can disrupt damaging money habits and create brighter financial futures for everyone, everywhere.

This article is provided by nudge.

For more on this topic, register to attend REBA’s webinar: Could your financial wellbeing programme be undermining diversity and inclusivity? at 4pm on 20 October, hosted with our strategic partners nudge.

In partnership with Nudge

A leading financial wellbeing benefit using behavioural science & technology to help employees.

Contact us today

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