Leader: What Covid-like disaster needs to happen to prompt people to act on pensions?

Flicking through April’s edition of Money Marketing, I was struck by something odd.

Emblazoned across the front was the headline, ‘Pensions on life support’, and, in our cover story, news editor Dan Cooper wrote: “People aren’t saving enough but can’t afford to save more. How can the UK pensions system survive?”

It’s a vital question, and the industry must get to the bottom of it.

What is a pension if not a financial safety net?

The plight of pensions is no joke. Even before the cost-of-living crisis, we weren’t saving enough. Now, thanks to soaring inflation and crippling interest rates, worrying numbers of people are raiding pots to pay the bills.

Indeed, last year was one of the worst on record for outflows from advised platforms, with pensions being “hammered”, according to The Lang Cat. People just don’t have the spare cash.

Yet, turning a few pages more in MM, this headline too caught my eye: ‘Income protection sales are booming. Has the dial shifted on this protection underdog?’

‘Booming’ is a word we don’t see often enough in financial services today — especially when it comes to sales. But it’s certainly apt in IP’s case, with a record 247,000 policies bought last year — a 16% increase on 2022 and the highest figure since the Association of British Insurers started collecting data in 2000.

The thing is, protecting today’s income is seen as a ‘now’ problem. Retirement is deemed a ‘future’ problem

Three key factors appear to be behind the uptick: a carefully planned push from advisers, trade bodies and campaigners; the Consumer Duty changing the way advisers approach protection; and, interestingly, the rise in sickness absence since Covid.

Financial safety net

The protection industry is celebrating the long-awaited recognition of IP’s role in providing a financial safety net, as it should. This is a real coup.

But what is a pension if not a financial safety net? Why is extra cash seemingly being found to buy IP, but the same priority isn’t being made for pensions?

Last year was one of the worst on record for outflows from advised platforms, with pensions being ‘hammered’

A shout-out here to the Income Protection Task Force, a key player in the push of IP’s profile. Its annual IP Awareness Week has been hugely successful, as have its Seven Families and Seven Advisers campaigns. Where is the equivalent cheerleader for pensions?

But I want to look more closely at the Covid factor, especially the psychology at play. The pandemic highlighted the need for households to protect their income from the unexpected. It concerned younger people especially, with LV= finding that 8.3 million 25- to 44-year-olds without IP were considering taking out a policy in 2021. That’s a huge number from a notoriously apathetic group.

How do we ensure the defining moment doesn’t come too late?

The subsequent cost-of-living crisis has landed another financial punch, cementing IP’s status for many as a necessary expense. The thing is, protecting today’s income is a ‘now’ problem. Retirement income is deemed a ‘future’ problem. And human beings are not very good at delayed gratification.

Detached view

Did you know that, when we think of ourselves in the future, we use the same part of our brain as when we picture other people? Thinking of our future self is like thinking of a stranger. So being told we need to save money for our future self is regarded, essentially, as being told to give our money to someone else.

The future threat just isn’t tangible enough right now

Let me paint you a picture of how I — and likely many others my age — view retirement (and I’m not expecting this to go down too well with readers…).

I’m 36 and my parents, their friends and the parents of my friends are in their 60s and 70s. I see their colossal property profits, fantastic holidays, final-salary schemes and access to a state pension while they can still enjoy them. It will all work out for me like it did for them, right? Well, no.

Don’t get me wrong — I save into a pension and my measly pot already puts me in a better position than that of many. But should I have started saving earlier? Yes. Should I be saving more than the very minimum I can get away with under auto-enrolment? Also yes.

The plight of pensions is no joke. Even before the cost-of-living crisis, we weren’t saving enough

The problem is, the future threat just isn’t tangible enough right now.

Covid and the cost-of-living crisis have made protecting income a ‘now’ problem. What will it take for the same urgency to be felt with pensions? And how do we ensure the defining moment doesn’t come too late?

Maria Nicholls is features editor at Money Marketing

This article featured in the June 2024 edition of Money Marketing. 

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