Closing the Stable Door

So yet another Defined Benefit Scheme closes to future accrual. The Alliance Boots Scheme has announced that it too is joining the exodus from excellent, albeit unaffordable, pension provision into the less risky (from the employers perspective that is) Defined Contribution arena.

Really we should not continue to be surprised every time a ‘household name’ takes this decision. It is as inevitable as the Brits losing at every sport they turn their hands too (except maybe cricket on a good day or snooker but the first is boring and the latter not really a sport at all – and is boring – hm, I detect a pattern developing…)

But back to the blog. The real challenge for employers will be to encourage their employees that moving into DC is going to be a ‘good thing’ and for this, good communication with their employees is going to be key. The downsides are genuine and obvious of course. The risk of investment falls firmly onto the shoulders of the individual, rather than the employer. While the choice of the default investment fund selected by the Trustees or within the contract will be crucial (since this is where the majority of members will remain) the fact that this decision has been taken out of their hands will be woefully insufficient to win the hearts and minds of their employees and that is assuming that the employees understand just what is being done in their name. A one size fits all asset allocation strategy just won’t cut it either.

Financial education in the UK is appallingly inadequate, partly due to the extreme complexity of the investment choices available, partly through basic inumeracy from schoolage upwards and partly through investor or member apathy. It will be vital to get across some very hard truths about retirement in the future - not least of which is the very simple formula – We are all living longer and living longer = bigger pension pots to pay for it. The money/savings to see us through possibly 20 years of retirement has to come from somewhere. And that somewhere is the pocket of the individual during their working life. It’s a hard lesson, and not a particularly welcome one when you are struggling to put a roof over your head and bring up your kids.

But the lesson must be learnt. And soon. Because we will more and more have to begin depending on ourselves and not expect someone else and certainly not the State to do it for you.