Palmer talks Pensions: Does saving make sense?

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Gordon Brown and his Cabinet are sitting uncomfortably on the horns of a dilemma at the moment. Not an unusual place for a government perhaps but this particular dilemma is generous with its discomfort. Others affected are savers and those who encourage saving and investment.

The dilemma is, of course, how to keep money circulating in the economy to save jobs at a time when the government is also telling people to save for retirement. Cutting the base rate to help borrowers suggests, however, that those with savings shouldn’t expect much help from ministers grappling with macro-economic monsters.

Individual investors faced with falling investment returns and annuity rates must be asking: why save at all? Don’t be surprised if many workers come to the view that spending and paying off mortgages make better sense than putting more money into DC pensions, or any money into personal accounts in 2012.

As an industry we cannot afford to let this go unchallenged. UK savers outnumber borrowers by around seven to one even though the amount borrowed is more than the sum saved. Money does make the world go around but when the balance is out it can be a bumpy ride.

What is clear is that the UK does have a savings culture and it needs more nourishment not more neglect. The industry has the means for an immediate and ongoing dialogue with savers and there has never been a better time to put it to good use.

Those already in employer-based DC schemes will need encouragement to stay with them and take more interest in investment strategies and contribution levels; those not in schemes or transferring from DB, will need even more convincing of the benefits of retirement saving in DC.

Advisers and providers will have to understand employees’ concerns, answer their questions and encourage good decision making. We will have to do more than just explain how a pension scheme works; employees will need to understand how their financial wellbeing can be maintained.

One of the toughest challenges over the next few months will be to explain falling projected payouts. And yet… online communication, pensions account management and tools are not used nearly enough by scheme members. This is a missed opportunity.

Online communication offers a highly effective way of building confidence in saving through individual and collective information exchange. Most providers have invested in online communications; time to get the investment to pay dividends.

Martin Palmer is head of corporate pensions marketing at Friends Provident

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