It’s time to end the pensions taboo
Seven years ago, I had a dirty conversation with a former colleague. We were talking about a subject that British people find so intimate and untoward: money.
I’d made the mistake of suggesting the company could have pay transparency which, to my surprise, made him hot under the collar. Apparently lifting the veil on salaries would be totally inappropriate.
Britons would prefer to talk with their parents about sex than cash problems according to recent polling. But why does it have to be awkward? Think about the crucial help and guidance that people might be missing out on by being too worried about bringing up finances.
Growing up in Sweden, my relationship with money was entirely different. It’s less taboo and there is even a public database where you can find information about everyone’s income. Without talking about it, you risk making poor decisions with your income, savings and investments.
Take pensions for example – they’re one of the best vehicles for wealth creation, and yet most Britons have no idea where their pension is, never mind what it’s invested in. When we start a new job, we’re typically told we’ll be given a pension of some sort, and most of us don’t think much more about it.
As an ex-fund manager, I know how powerful a pension can be, particularly given the compound interest you can earn from such a long-term investment. I took control of my pension a few years into my career by moving it to a provider where I could invest in funds that were in line with my risk tolerance and values. Unfortunately, most people aren’t given that choice in the first place.
Examining the political parties’ manifestos, none of them seems to be grasping this problem sufficiently. A proposal for a “pot for life” was introduced by Chancellor Jeremy Hunt in the Autumn Statement last year, but the Conservative manifesto is silent about it and Labour commits only to vague “reforms to workplace pensions to deliver better outcomes” and a pensions review.
Politicians on all parts of the spectrum should unite around giving employees the legal right to pick their pension provider, instead of having to abide by the choice of the employer. The concept has similarities with Australia’s Superannuation system and could be the beginning of ground-breaking pension reform in the UK, fundamentally changing who controls pensions and shifting the power from employers to employees.
The “pot for life” scheme not only makes financial sense; the concept of more pension control is also popular with the electorate. According to polling commissioned by TILLIT, more than 40 percent of British workers agree their employer should allow them to pick their own pension provider. Over half of employed workers under 45 said they want more control over where their pension is invested. This is a clear sign that pensions, as they are structured today, aren’t meeting the demands and requirements of modern workers.
We pick our jobs, our life partners, our homes. Our pension is the exception. And it’s an exception that could determine the quality of over 20 years of our lives. A poor choice by our employers could make or break our financial future.
Pensions can be a powerful tool to drive change in the world by putting our money where our mouth is – and individuals are far more likely than big funds to drive their cash away from fossil fuels. If the next government has the public’s interests at heart, they’d introduce “pot for life” and let employees take back control of their security in retirement.
Felicia Hjertman is Founder & CEO of TILLIT, a pension fund boutique. Originally from Sweden, Felicia started her career in financial services at the world-renowned asset management firm Baillie Gifford.
