Building faith in long-term saving

Douglas Anderson discusses pension contributions in his latest blog.

I’m 6 months away from adding my 55th ring to my trunk: the earliest age in Britain when people in good health are able to retire. Whilst I have no plans to retire, 33 years on from starting my actuarial career, maybe I can offer a few comments on long-termism in saving. I hope these personal reflections may help today’s generation of new workers have the confidence in building long-term security.  

The photo shows a care-free me in the United States in the summer of 1987 (on a day off from working in Boston, whale watching on the ferry to Provincetown, Cape Cod).  This was shortly after graduating from Aberdeen University. I got an early taste of work in the US thanks to a UK-US student exchange programme. Shortly afterwards, having turned down a much better paying job as a programmer, I started what I hoped might turn into a better long-term prospect, a job as a trainee actuary with the Government Actuary’s Department, part of the UK’s civil service. The short-term bonus was that I got to spend my first 9 months studying actuarial science on a masters-style postgraduate course. Not only did I not have to pay tuition fees, but I was being paid a salary and started to build up a defined benefit pension. It was an entirely different world to that facing today’s graduates.         

Nudging to develop a savings habit

Almost my first piece of induction advice on properly starting office-based work, came from an older, wiser colleague who encouraged me to pay “additional voluntary contributions” to top up the standard civil service pension. The saving advice resonated with one of my granny’s favourite Shakespearean quotes “neither a borrower, nor a lender be”. Looking back, both my thrifty Scottish grandparents and my older actuarial colleagues influenced my preparedness to save (and seek out money making opportunities) whilst some of my peers seemed to be just partying.       

In my mid-20s, having scrapped enough together for a deposit, I bought my first home on a 95% interest-only mortgage. A couple of years later, I worried when mortgage rates rose to 15% (almost 10 times the interest charges of today!) as the Government battled the traders to keep pound in the Exchange Rate Mechanism. (The ERM was the forerunner of the Euro: it all came to a head on “Black Wednesday” – 16 September 1992 - the day that George Soros became a household name). Whilst property may have been cheaper relative to wages in the 1990s, the costs of servicing the debt were not that different. 

Taking my own medicine

In my thirties, when I became a private sector actuarial consultant, I became wholly responsible for my own pension. I again set myself a challenging target, of saving 20% of my earnings. My logic for this number came from the typical combined contribution rate for employer and employee in a decent defined benefit pension scheme, when interest rates were rather higher than today’s. A case of taking my own medicine.        

Twenty years in and my confidence started to grow 

By my forties, I had seen more good years than bad years, not only did my pension pot grow but so did my personal faith in long-term saving. Now 33 years in, I’m certainly glad I made all those sacrifices to keep up my contributions, whilst also being able to keep up my exposure to riskier assets through borrowing (equities in my pension fund and residential property). I’ve now built up way more than I could have imagined when I started my first proper job at 22 - I’ve undoubtedly become a firm believer in the benefits of long-termism.   

At 55, it feels like time for me to become the guy nudging the new joiners    

With Club Vita’s prognosis giving me a 50:50 chance of reaching 90 (35 years is too much “third age” for me) and 10% chance of hitting 100, I feel barely half way through. I’m really looking forward to my next decade of work. 

The challenges for today’s cohort of new workers are undoubtedly greater than my generation faced, with low interest rates distorting housing markets and student debt compounding the problem. Yet, this tougher starting point means that having faith that taking controlled risks will be rewarded over the long-term is more important than ever. 

If the challenges of communicating long-termism and longevity effectively interest you, please join Rachel Lloyd, Bruce Wolfe, Erik Pickett and I in discussing:  Longevity or Mortality?:  it’s a question of communication. We aim to share some helpful ideas, rules of thumb and maybe make a few nudges towards financial wellness.    

Lang may yer lums reek


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