As Advisers we have always recommended investment based savings should be viewed over the longer term as volatility over time will usually lead to better results. This view is particularly appropriate when speaking with younger savers as they can afford to take more risk in the quest for better returns.
At times like these where the market is in a state of flux though, volatility can be frightening for anyone, and if as a young saver you log into your pensions portal only to see that the value of your investments has halved you would have every right to be concerned.
If the statistics we have seen are to be believed, a significant majority of the 18-24 year olds voted to Remain, and a majority of 25-49 year olds voted the same way and so could feel that they are seeing their values fall as a result of something they never wanted in the first place!
It would be a real tragedy if young people, more switched on to pensions than ever before due to publicity around Auto-enrolment, found themselves put off the whole idea of long-term savings due to poor investment results. As a group they are not saving enough anyway, and I suspect it wouldn’t take much to convince people to opt out of pension auto-enrolment and ‘bolster’ their pay packets instead.
It may help that the FTSE 100 has bounced back somewhat, but let’s not forget that the FTSE 250 is still freefalling, and this is often seen as a better indicator of how the UK market is really doing. How a young saver’s portfolio is doing could very much depend on what time or day of the week they are checking it.
In some respects, we are fortunate that young people tend not to check their pensions terribly often. But with share price volatility dominating the headlines it would come as no great surprise if Brexit was the prompt to change this.
This means that Advisers, scheme administrators, providers and HR directors have a conundrum. Do they talk to savers about their finances and risk more people paying attention, or do they leave it alone and hope that no one is looking anyway.
The EB Partnership have always believed that the communication of benefits is vital for many reasons, and in fact are so passionate about it we launched a company to help companies of all sizes do that very thing (www.benefitscommunication.co.uk)!
Given the Brexit vote, we feel that it is better to engage with staff than not to, but it needs to be done carefully. We all need to find a way of explaining to policyholders that while their investments may have fallen, they have a few decades before retirement and are in a good position to recoup any losses.
Communications need to be clear, concise and reassuring. And they need to be soon. After all, if schemes leave it too late, their members could already have ‘voted to leave’ with regards to their retirement savings.