01 OCTOBER 2012 | DEEPAK JOBANPUTRA
In my early years as an actuary, my manager used to say “Pensions. What’s the big deal? It’s really simple: you pay your money in and a ‘few’ years later you receive an income. Money in, money out.” While he was making light of what a pension represents, the very word ‘pension’ seems to cast fear into the minds of most lay people and is often classed as a boring topic, particularly among the young – I’ll leave you to define what young means.
The issues surrounding pensions are, however, some of the most challenging in the developed world and the full effect of these will not be felt for some time. So why is it that so few people do little to plan for their future? The answer can be very simple. Today is more important than tomorrow. The reality is, of course, vastly more complex.
A solution being launched in the UK on 1 October will see companies auto-enrolling their employees into the National Employment Savings Trust (NEST), which is designed to be a simple, low-cost option. In part, the success of this model relies on inertia – once enrolled, it is hoped that employees will continue with their savings and not take action to opt out. The increasing longevity that we are experiencing is positive but could be devastating if it is combined with insufficient financial support in later life. Planning for such changes at a macro level is fundamental in protecting developed societies and in helping new and emerging economies to grow.
Actuaries must work with key stakeholders to execute solutions to these issues. In this issue of The Actuary, Cass Business School’s professor of pension economics, David Blake, describes how actuaries have overcome their formerly territorial approach to pensions. While I don’t envisage that pensions will ever become an enjoyable topic for discussion over dinner, we must work towards raising awareness within our society and try to educate people into seeing that tomorrow is just as important as today.