“JE NE REGRETTE RIEN.” So sang French chanteuse Edith Piaf in 1959. “I do not regret anything.” I wish I could say the same about my personal finance life.
Looking back over some 30 years of saving and investing, insuring and borrowing, I have many regrets. Borrowing too much on credit cards in my early 30s when starting a family. Taking out an endowment mortgage that failed to perform according to what the salesman told me.
Then, not overpaying on the mortgage when I could have done. Not using all of my Isa annual allowances. The list goes on, but I think you get the picture. But probably my biggest personal finance regret is not of my own doing. It is the fact that in my 20s and early 30s, none of my employers offered me the opportunity to save into a workplace pension. They included a firm of chartered accountants, a small-time publisher, a big-time publisher and a building society, which sadly is no more.
All were unwilling to enrol me – for a variety of reasons. I was too young, they too parsimonious or I didn’t stay long enough to earn my right to join their pension scheme.
Three years of self-employment did not help matters either, a period of my life when day-to-day financial survival rather than financial security in later life was the overriding goal. It meant that for the early part of my life I lived in a pension wasteland. As a result, I have been playing catch-up ever since.
Although today’s young adults are faced with student debt, limited job opportunities and out-of-reach house prices – they do have one thing going for them. It is called pension auto-enrolment.
Since late 2012, more than 7.5 million people have started saving into a pension for the fi rst time as a result of auto-enrolment – the requirement under rules introduced by the coalition government for employers, large and small, to push most of their workers into a pension.
Auto-enrolment is not compulsory, but it is not far off. If you don’t want to save, you have to keep opting out.
By the time all employers have embraced this new auto-enrolment regime by the start of next year, around 10 million employees will have been drawn into pensions.
Good news? Of course it is, although we must not get carried away with the propaganda that the Pensions Regulator and the Department for Work and Pensions perpetuate on this subject. While millions of workers are now saving for their retirement, the sums involved are often proverbial peanuts rather than shiny gold nuggets.
In many cases, it is the bare minimum permitted under auto-enrolment – 2% of ‘qualifying’ earnings, comprising a 1% contribution from the employer, 0.2% of tax relief and the rest (0.8%) from the employee.
Note the word ‘qualifying’. Auto-enrolment contributions are only based on annual earnings between £5,876 and £45,000. If you earn more, you can put more into a pension but your employer doesn’t have to contribute above this level. Yes, the minimum contribution percentages will increase once auto-enrolment has been rolled out – rising eventually to a combined 8% – which means employees begin accumulating meaningful pension pots.
But auto-enrolment needs a major shake-up, a point acknowledged by the government which has asked pension experts to give it the once over.
It needs to include many of those workers now excluded – for example, the self-employed and most part-time workers. The qualifying earnings bands should be scrapped. More simplicity, please, and an opportunity to save more.
In addition, it would be great if workers had a bigger say in the pension funds they are auto-enrolled into. Currently, the employer chooses the pension provider, which invariably (but not always) means a choice based on cost. Low cost does not mean best pension value for employees.
Finally, and controversially, auto-enrolment should be replaced by compulsion. It would stop that minority of employers (illegally) encouraging workers to opt out of the pension to save their business money.
If compulsion had been around in the 1980s and 1990s, I would not now be playing pension catch-up. Indeed, as far as pensions go, I would be able to scream from the rooftops: “Je ne regrette rien.”
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