SAVING 2.0 – Time to think differently
Justin Garbutt, Director – VitalityInvest Distribution
We’re all living longer – half the future generation born after 2036 is expected to live to 100*. But despite more of us saving for our retirement, and from a younger age, there’s still a lot of work to do if we want our time in retirement to be both financially and physically healthy – the ‘Holy Grail’ of life after work.
Tom Conner, Director at Drewberry Wealth said: “It’s not melodramatic to say there is currently a savings crisis for many UK households. Our 2017 Wealth Survey found that 1 in 5 UK workers with a pension had £10,000 or less in pension savings and 2 in 5 workers had less than £1,000 in cash savings. Auto-enrolment will help younger workers who still have time on their side to accumulate sufficient retirement savings, but many mid-to-end of career workers will struggle to save enough for a comfortable retirement given the status quo.
“Self-employed workers are of particular concern given that auto-enrolment doesn’t apply to them and our survey found that only 27% of sole traders had a personal pension in place, which is truly worrying. The research implies one of the biggest issues is a head in the sand mentality when it comes to saving. Over 50% of our survey respondents admitted to not knowing how much they had in pension savings and 66% were unaware pensions attracted tax relief on monies paid in.”
These facts and figures are concerning, and perhaps not a revelation. But thinking of the future purely in financial terms misses part of the bigger picture.
The link between health and wealth has long been the stuff of debate, research and many a news headline, with wealth being regarded as the gateway to good health. And at the moment, the industry rewards illness over wellness with products such as impaired annuities. But what if we turned this on its head – what if we could encourage people to look after their long-term health at the same time as they take care of their wealth?
If we start to reward good health as early in the process as possible, to the advantage of building wealth, we can start to think very differently about saving for the future – and of actually achieving both a wealthy AND healthy life after work.
The impact of health on future wealth starts well before retirement. Living longer should be a bonus, but many of us either worry how we’re going to afford it or bury our heads in the sand and don’t think about it. No matter which online tool you use, or which adviser you speak to, many will say you need a bigger nest egg the longer your retirement lasts. This can be achieved through saving earlier, saving more and working for longer. There is a close correlation to health, in that approaches to both involve finding a balance between planning for the future and living in the here-and-now.
All too often, we choose consumption today over consequences for tomorrow. And that potential negative impact on our health can have an impact on our wealth too. But by using the theory behind behavioural economics, creating an environment that will ‘nudge’ us towards wiser decisions and healthier lives, we can start to make changes by rewarding people for making the right decisions, rewarding activity, and providing tangible results and outcomes that encourage healthy living and healthy ageing. And the sooner the better.
Roy McLoughlin, Associate Director at Cavendish Ware agrees. He said: “We are immersed in what is affectionally known as a demographic time bomb that manifests itself in multiple layers. What is different, and arguably revolutionary, is that many young people are appreciative of this and their understanding of the issues shows a refreshing perception. This, if nothing else, may be due to the fact that parents and grandparents are thankfully around for much longer than previous generations could generally enjoy. The huge take up rates of auto enrolment vindicate this understanding.
“However, pensions alone are not the solution and unfortunately their access will be pushed back further and further. We need to encourage both current and future generations to save into other metaphorical buckets, which is where advisers and investment companies have a huge role to play. People often need persuading to save, as much as they need guidance and advice on where and how to save. The challenge for us all is how best to deliver it – and how to make people stand up and take notice.”
By associating simple, every day physical activities and regular medical checks with incentives that help you grow your investment, we start to look at saving in a very different way. Make it rewarding – not just financially, but physically, mentally and economically. Make it easy to do, fitting in with everyday life, using accessible technology. Make it easy to see the benefits building, to reward loyalty and provide ongoing support and help when it’s needed. And make it available as early as possible.
Let’s take advantage of the increasing appreciation and understanding of the consequences of longevity but in a way that matches this refreshing perception and not just by saying the same thing over and over again. It’s time to think differently, act differently and talk about it differently. It has worked in the protection market - now is the time to start looking at the savings market the same way.
To find out Vitality’s positively different investments can help your clients live longer, healthier, more financially secure lives visit adviser.vitality.co.uk/invest
* Resolution Foundation, Live Long and Prosper, 2017
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