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Don’t Eat That Marshmallow (Yet)


A word that, in my experience, has the capacity to strike fear into the hearts of even seasoned HR pros who otherwise laugh in the face of thorny TUPE queries, pour scorn on negotiating detailed compromise agreements and ridicule anyone who finds calculating the annual leave provisions for term time only contracts complex…

I should say upfront that in writing about pensions I’m breaking one of my own (as yet unwritten) blogging prime directives in that it’s a subject I can’t legitimately claim to know that much about. So before I actually commit anything to screen about pensions, I’m going to write about something I do happen to know quite a lot about: one of my favourite sweets, the humble marshmallow…

The “Stanford marshmallow experiment” was a series of studies conducted by Walter Mischel at Stanford University in the 1960s and 1970s into delayed gratification. In the studies, a child was given the choice between:

  • one small and immediate reward (often a marshmallow, hence the name); or
  • two small rewards if they waited a short period of time (usually around 15 minutes).

The researchers conducted follow up studies on the children which demonstrated that those who could wait that bit longer for their marshmallow ultimately achieved better educational results, had a healthier Body Mass Index and generally gained a variety of other (somewhat ominously-named) positive “life measures”. The bottom line obviously being having the self-control to be able to delay things could be good for you in the longer term.

Sadly it’s something I’m not very good at all… which is a problem when it comes to pensions because like quite a lot of people I’d rather have my marshmallow now – no, RIGHT NOW please – rather than wait 15 minutes. I haven’t done any in-depth research into this issue but an awful lot of people I have worked with over the years have earnestly told me that they “couldn’t afford” to contribute to their pension at the time. I’m not sure what level of salary they were waiting to achieve before they could afford it – I’m not talking people on minimum wage here – but who am I to question their financial planning?

Well I’ll be honest: I’ve mostly adopted “ostrich management” techniques when dealing with my own pension provision. That’s not to say I haven’t saved – someone once told me (and I’ve no idea if it’s true) that every pound you save before you turn thirty is worth roughly double every pound you save afterwards. I don’t really care whether or not that’s true as it sounded worrying enough to drive me to join the pension scheme and now, like a lot of people, I’ve got a few little pension pots bubbling away in the background.

Having recently moved jobs I’ve had to go through the whole “pension review” thing again as I launched what will be my fourth separate personal pension scheme. It was actually a very valuable exercise as it forced me to take the time to consider my financial position, my attitude to the future and my hopes for my future finances. Working over the phone with an IFA, we went through a series of questions about my financial past, present and plans, before doing some number crunching to see where those answers would get me. I anticipated that the answer would be doom and gloom about having to live on £2.50 a week and was frankly astonished to hear that on the basis of my admittedly fairly spurious number crunching, I might just about be OK. Might (remember, the value of your investments can go down as well as up).

We all know the scary stats about the demographic challenge ahead. We know the state pension won’t be up to much in the future, we’ll have to work longer to get it and in the meantime people aren’t saving enough of their own hard-earned for their retirement. We now have the joys of Auto Enrolment (AE) to try to fix some of these issues. The UK Government estimates (in the Office of Fair Trading publication OFT1505, data fans) that AE will increase the number of individuals enrolled in DC workplace pension schemes by between six million to nine million people by 2018. The value of the assets invested in schemes as a result of AE, which are currently estimated to be around £275 billion, should at least double by 2022.

That’s a lot of people joining a lot of pension schemes and saving a whole lot of money (see, that’s the incisive level of data analysis you can expect from me).

But it’s not going to be enough. The same Government report notes that “Scheme members are reliant on their employers to make most of the key decisions about their pensions for them and many employers lack the capability and/or the incentive to ensure that members of their schemes receive value for money in the long term.”

Which is where you come in, fellow HR people. To some extent, we hold the marshmallows. We have it within our power to make sure people genuinely understand the importance of saving for their future – it’s not just some vague notion of something they “should” be doing, like they “should” be flossing their teeth every night before they go to bed. I’m sure some will say it’s nothing to do with business whether or not people invest in their own pension but in my view business is part of the community and if the community is stretched to the limit in future as people are unable to support themselves in their old age, businesses will suffer too.

People much cleverer than me who understand pensions properly are more likely to have the answers to these issues (although reading some of the guidance around AE, I’m not entirely confident in that statement…). But it’s people like you and me that will put them into practice – we need to be alive enough to the problem to know it’s important. And it’s important NOW – not in (a metaphorical) 15 minutes.

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24 July 2024


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