Dear Mr Cameron, Mr Corbyn and Mr Farron
Education, Education, Education and Pensions
We are living in a society where there is an increasing disconnect between those that have, and those that don’t. This is not a criticism but reality.
Decisions around housing, pensions and financial education are taken by those who have the luxury of salaries above the national average, guaranteed gold plated pensions and very little knowledge of “normal” life.
The work of MPs is complex (and not fully understood by all), having to turn to civil servants and heads of industry for guidance and direction. Although this seems the obvious route it compounds the problems because these individuals are often out of touch.
In this open letter I want to outline some challenges facing young people today, and set out some thoughts and ideas.
We live in a society that “needs” everything now; fuelled by the availability of credit to feed that desire often means that many people don’t understand the basics of budgeting. Budgeting applies throughout society but even those with seemingly good earnings struggle with the basic concepts. This means although individuals appear “wealthy”, in reality with no control of their finances they are swimming in debt and struggling from month to month.
This puts many in a very difficult position, a slight change in circumstances can change things for the worse…unemployment, reduction in earnings, illness etc.
Charities can help get people back on track but the tide of people uneducated in basic budgeting is getting greater because there is no desire to deliver basic financial education throughout school (from 4 to 18).
In 1979 £9 in every £10 of all pension savings in the private sector came from guaranteed pension schemes (source: Telegraph). This means many people in retirement today have the luxury of a guaranteed pension (whether provided by a private or public employer).
The harsh reality is that for many these guarantees are gone. MPs and civil servants involved with tackling the pension shortfall have no real concept of what this means.
Take this example, a newly qualified teacher earning £22,000 would be entitled to a pension of £40,338 at age 68. The cost £109 p.m. (net after tax relief). (source: Teachers Pension Scheme).
For someone earning the same salary but without a guaranteed pension they would have to pay £419 p.m., 285% more!
The take home pay on £22,000 is about £1,470. Assuming pension contributions and rent for a room of £500 p.m. a teacher would have around £860 p.m. left to live on.
For a private sector worker it would be just £550 p.m.
Housing or retirement
When developing solutions, the focus must be on the “have nots”; if the majority don’t have the luxury of a guaranteed pension scheme then this is where the challenge lies.
The figures above show that a good pension is out of reach for many especially when you build in basic living costs. The average rent in the UK is about £750 p.m. but can be more in some regions. Renting is the first step for many because buying is too expensive for the majority.
In many European countries renting is normal with regulation meaning that rental properties can be a home for life. The UK doesn’t have the same levels of protection and it means that a rental property can never be seen as a home because there are no guarantees as to how long you can live in a property.
For this reason, we have a society focused on owning their own property. With the cost of housing outpacing earnings, the only means of saving is through sacrificing something! It is not rocket science to work out that the less you save for the long term, the more you get in the short term.
What many seem to have missed is that retirement and housing are now interlinked. Even a basic income in retirement is unaffordable for many, which means even before someone considers buying a property they are not saving enough for retirement. Once you factor in the need to save for a house the whole framework behind getting a sustainable income in retirement breaks.
Although it doesn’t solve the problem on its own surely the focus has to be on making renting fairer in the UK and akin to Europe so that people can view the property they rent as their home for life and not just for the next few months.
If we can change people’s mind-set, bring rents back to a more affordable level and enable people to view their rental property as their long term home then that has to be a positive step to enable people to focus on other goals.
There have always been financial pressures but they now seem greater than ever; how do you pay rent, how do you save for a house and what about retirement?
Without basic budgeting skills many live from month to month; interest rates will go up but for many this will make paying mortgages and debts very difficult because they have never had to budget for high rates. Higher rates also make the affordability of property even harder. It brings us into this vicious circle of property or pension.
Unemployment, illness etc changes things overnight; the priority will always be to keep a roof over our heads and this can have a major impact on retirement planning.
And so the challenges go on.
There is little doubt that there is an awareness of the challenges but everything is disjointed. Whether we try to develop solutions for housing or saving for pensions the two need to work hand in hand. The problem is that where you lead from the top with no knowledge of the those at the bottom you have a disconnect. You cannot understand the daily challenges that people have where you are sitting in a position of “having”; having a guaranteed pension, in most cases not having a mortgage and having earnings which exceed the national average.
The approach needs cross party cooperation which means that parliamentary changes should have no impact on the development of long term solutions. Without this approach Britain will break. This is about educating children from 4 to adulthood, it is about turning to “normal” people with perhaps limited knowledge of financial services to help shape radical ideas for the future and it is not about appointing industry respected individuals.
Although I accept this letter will likely fall on deaf ears and will not be worthy of a response I want to challenge you as to whether you care for the future of Britain and if so are you prepared to do something radical which could have a massive impact for future generations, or are you simply going to play safe and pass the problem onto the next generation.
Director & Co-Founder