Organisations like Life Academy who seek to improve adult financial literacy will have a critical role to play if Pensions Armageddon is to be avoided. This is the stark message that Life Academy Chairman and Watson Wyatt Senior Consultant, Alan Pickering, will deliver today at a conference of the Pensions Management Institute in London.
The conference deals with the practical steps that employers and trustees should take when existing defined benefit schemes are being closed to new entrants or future accruals. According to Alan, this is not the end of the process. “Such schemes are the hard-earned pension rights of real people. These rights should be actively managed and adequately communicated throughout the scheme member’s life.
“Hopefully, if we can reach a sensible settlement in relation to the past, we will free valuable intellectual time and physical resource for thinking creatively about future pension needs. Closing existing schemes should not be regarded as job done. It is the prelude to the opening of a new and exciting chapter.”
Alan continues, “In future, workers will opt in and out of work as they grow older. Retirement will be a much more intermittent process and not subject to the cliff edge which we so often see today. If workers are to enjoy the ability to sell their labour in later life, they will need access to lifelong training and should enjoy the same flexible benefit package as their more permanent and possibly younger colleagues.
“If all this is to work well, we will need to increase financial literacy. It is not necessary for all workers to have a financial planning certificate. However, they should know when it makes sense to save, when to borrow and when to spend. They should then be able to adopt a more holistic approach to pension accumulation and subsequent retirement incomes. Workplace financial literacy programmes have an invaluable role to play if we are to align expectation with reality. If, in the future, the pensions paid out by today’s closed schemes fall short of expectations, even though such expectations may be unrealistic, we might witness a financial Armageddon which could dwarf today’s pension disappointments.”
