Guest columnist Tony Vidler on the financial pressures of the 'sandwhich generation' and the importance of good advice rather than pure product.

By Tony Vidler*

Last week, the Financial Services Council (FSC) issued a statement summarising some recommendations they were making regarding national retirement savings, following research it had conducted in New Zealand. See their full report here.

The report is extremely interesting, though missed the mark in a critical area. There is an inherent assumption that if the right product solution is created (see Alex Tarrant story here for more) then that will address the issue. There is a lack of focus on the benefits of changing consumer behaviour through good education and advice.

The focus of the report therefore is about a consumer attaining financial freedom in their golden years.

What about the good life along the way?

The report makes a number of very interesting and useful observations, especially in the area of recognising the extraordinary convergence of issues facing the under '40's. This included the some core retirement planning issues such as:

• They are likely to be living longer than previous generations;
• They are most likely to have less family financial support than prior generations; and;
• They face more uncertainty than prior generations when it comes to government support.

Some other very significant factors were not cited in the recommendations however. Without attempting to provide an exhaustive list, one should include other factors facing today's workforce when it comes to retirement planning.

• Less subsidisation of health & education costs than previous generations; leading to greater strain on today's resources.
• Prior generations had access to "defined benefit" superannuation schemes which provided great certainty for retirees.
• Higher standard of living expectations from the children of today's under '40's - creating additional financial stress.

Generation sandwich

There is no doubt in my mind that this segment of society (the under '40's) is the "sandwich generation".

Firmly stuck in the middle of change - not deriving the full benefits that previous generations did of having guaranteed retirement, yet they are expected to fund it for those in retirement now. Without subsidised education and health care, they're paying their own way - and they're also expected to pay the way for their own children. One could go on, but I am sure you get the key point: they are funding the expected benefits for retiree's today, together with the wider benefits demanded by society today, together with their own needs today, and also having to make provision for the next generation on a user-pays basis.

Simply providing a retirement product solution to address the needs of these younger New Zealanders is not enough. Their needs are much more complex, and quite frankly they have half a century of working life to negotiate before they can realise the benefits of a well constructed retirement plan.

While it is important to make provisions for the future, and ensure that the final '30 or so years of life are comfortable, dignified and independent (wherever possible), there is the remaining somewhat important matter of trying to achieve exactly the same objectives in the first 60 years or so of life. Financial freedom (as an objective) has to be weighed up against having a good life along the way.

What will help?

1. Better financial education during their adult lives. They need the best possible information, tools, and understanding about how to manage their resources well, and to understand the impact of the choices they must make. It is an investment in efficiency after all - if they are assisted to make better choices, their resources will go further and it will be beneficial for society.

2. Professional and personalised advice. Their world is complicated and they face many competing demands. Good advice will help navigate the competing demands, help them decided when and where (in their lives) products may or may not help, and help them get the best out of their resources along the way. During their working lives financial products are a relatively minor part of the overall financial picture. Advice addresses the bigger picture. Products alone do not and the former was the missing ingredient from an otherwise great piece of work by the FSC.

*Tony Vidler is an authorised financial advisor  and chair of the board of the Institute for Financial Advisors.