This is one of my favourite and lasting memories when engaging with employees regarding their pensions. I was on site at a business that understands the value of helping their employees save for their future by hosting one-to-one pension surgeries. The employer paid a generous contribution to their pension scheme too.
‘I want out. They’ve taken money from my salary. I want it back!’ This employee was angry.
A common enough position from employees who have been enrolled into a pension and do not understand the value of what has been done for them. He had been in the scheme for three months and when I passed him a statement with his fund value, the thunder disappeared.
‘£800, I’ve never had £800 before.’ He was of course referring to having money of that magnitude saved up in his name. That was the killer line that stuck with me. Defined contribution pension values can quickly amount to figures most do not see in their everyday finances.
We explored the arithmetic to get to this point. It cost him around £60 per month, net of tax and National Insurance. But he had around £250 per month invested in his name. Was that a smile?
There is undoubtedly a focus on short-termism. A compounded effect of a significant proportion of our society not having enough immediate funds to do the activities and buy the items they want in the here and now. This, combined with human nature struggling to defer financial gratification, means there is a high demand for consumption of available assets. A pound saved for tomorrow is a pound not enjoyed today.
Ask yourself a question. If you had been promised £1,000 in 12 months’ time, how much money would you accept today in exchange for that promise? Assuming you could get 2% interest if you invested it now, £980 would be a fair value at today’s date. I imagine most people would accept a much lower figure. The more in need of the money or the greater the excitement to use it, the greater the discount you would accept. Some of course would choose to wait to collect the money in full after one year, but they would be in the minority.
Saving for the long term is a fight with our conscience. The period after the death of a loved one, or hearing of an accident or a bad luck tale, we remind ourselves to live for the moment. That often means the consumption of money, and who could blame us for feeling that way and taking that action?
Pensions built up over our working lives are usually the biggest asset we own in our entire lifetime. Surely that deserves special and frequent attention, but it does not happen enough, and that is why Pensions Awareness Day is such a great idea.
Confession, I look at my online pensions and bank accounts most weekday mornings. Arguably that is an addiction, but I know I am not alone because others in the industry have made the same admission to me. Mobile phone apps that remember your username and password and recognise your face to open up make it so easy. It takes under 10 seconds from picking up the phone to seeing the fund value. Should I look less often? The pension fund value is a bigger number than my bank accounts and bills, and I take comfort from that. Just like the man who was seeing £800 for the first time, we both take solace from a number on a page that is larger than our daily finances.
Having made the trip to reverse a financial commitment, he was pleased with himself for learning the value and cost of what he had. He decided to stay in the scheme and left a happier and wealthier man. I wonder if he too now looks at his fund value on his mobile phone every day?
