Pension savings need to be managed effectively to ensure that they will last throughout a person’s retirement years. This has become especially important in recent years given that state pension payments can be very low and the triple lock system may not guarantee increases for much longer.
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On top of this, in recent months coronavirus has not only decimated pension performances but may have also forced some people to tap into their assets prematurely.
Withdrawing money from pension pots may seem like an understandable choice given the current emergency but Helen Dean, the CEO of NEST Pensions, highlighted the importance of focusing on long-term commitments: “It’s important that people remember that pensions are very important and in terms for creating long term financial security, a pension is a very important part of that.
“That’s partly why it’s locked away for so many years, to allow that to happen.”
Despite all the warnings the UK has seen about pensions and other savings products being raided in recent months, Helen went on to detail that there is some evidence that in times of crisis, the best can be brought out of savers: “A lot of research suggest that when times are tough and the economy is struggling a bit people actually become a bit more prudent and they more likely to save if they can because they start to feel that sense of needing to have a bit of financial security.
“So, you’ll often get a situation where when people can save, their inclination to save is often advanced at times like this.”
Saving effectively for retirement has become a big part of the government’s agenda in recent years.
To encourage workers to take more responsibility with their private arrangements, the government launched workplace pension schemes, which automatically ensures that both the employee and their employer contribute funds to an appropriate scheme.
NEST is one such scheme that was set up by the government and under automatic enrolment laws put in place in 2012, all eligible workers should now be contributing to a workplace pension.
On June 18, the DWP released data on how auto-enrolment is working and the figures provided some interesting insight.
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The data revealed that a record number (88 percent) of eligible employees saved into a workplace pension in 2019.
This is a resounding success but the figures also showed a worrying trend for those who are self-employed.
There are often concerns being voiced about the pension arrangements of the self-employed who can face more complex rules and procedures.
Unfortunately, the figures from the DWP revealed that some of those worries may be founded.
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Self-employed workers saw a decline in participation rates from 21 percent in 2009/10 to14 percent in 2018/19.
Helen commented on this worrying decline and provided insight into what could be done to rectify the issue: “It’s really important for self-employed people to have long term financial security.
“Auto-enrolment has been transformational in terms of what it’s achieved for people who are working for employers.
“You know, here we are now with 18 million people in the UK investing in a pension, three trillion in assets being invested and most of those are workers and many of them coming through auto-enrolment, fantastic!
“The government hasn’t yet found the thing for self-employed people that will make the level of difference that auto-enrolment made for the in-work population.”
Helen revealed that to counteract this problem, NEST are working on a project to encourage self-employed people to engage with their pensions but it is a more complicated issue due to the built-in variation among self-employed workers.
While the importance of pension engagement cannot be understated, it should be remembered that another piece of the puzzle concerns longevity.
Helen detailed that while people may make changes such as cutting down on meat and flying less to help the environment, they may not realise that what their pensions are invested in could have a much higher environmental and societal impact.
There is currently around £3trillion in UK pensions and a large portion of that will have been invested, in what some may feel, are unsustainable industries, such as tobacco and fossil fuels.
Because of this, Richard Curtis and Mark Carney are launching the “Make My Money Matter” campaign which aims to take these pension assets and move them into a direction that builds a better world.
Some savers and investors may hold the view that growing financial assets can’t be done without investing into certain dubious fields but Helen is keen to dispel that “myth”.
NEST’s own ethical fund has outperformed their default fund for five years running now and further information on this project can be found at: https://makemymoneymatter.co.uk/
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