Our role in helping savers fund their future

We revisit our ‘New choices, Big decisions Pension Personalities’ research and the savers most at risk if we don’t find simple ways of communicating the complexities of retirement options to them.

A great success, but what now?

Next year marks the 10-year anniversary of auto-enrolment (AE). It’s been a resounding success, having helped more than 10 million people to start saving for retirement.

But more than 6 years after the introduction of pension freedoms, significant concerns linger about how to ensure savers make wise retirement choices.

Given the success of auto-enrolment was based on inertia, it would seem odd that the pensions industry would assume all savers should suddenly understand the complexities of retirement options and take control of their retirement planning.

It’s alarming to see how many savers are sleepwalking into retirement. To avoid poor saver outcomes, what’s needed are simple, good quality products that meet AE savers’ needs – built to provide a sustainable income to last their whole retirement. These factors combined should further support and help them to avoid making ill-advised decisions.

New choices, Big decisions

In our quest to make pensions work for everyone, our New Choices, Big Decisions Pension Personalities Revisited research showcases the challenges faced and decisions made by many approaching retirement.

We’ve followed a group of people since pension freedoms threw the shackles off how they can take their pensions savings and found they divided into 7 subgroups, with distinct characteristics. We’ve given these subgroups personas. Let’s consider a few that concern us the most.

Leave it Larry and Linda

Are so overwhelmed by the complexity of pensions information that, recently, they’ve decided to leave their pension savings untouched. Their savings were ‘out of sight, out of mind’ unless a life event – typically illness or redundancy – changed their plans. Lacking information, they’ve not made any decisions about their pensions for now.

Spend it Simon and Sally

They were initially pleased to take their 25% tax-free cash to spend on holidays, home improvements, or new cars but haven’t planned how to manage their pension pot. Instead, they’ve just rolled it over with their pension provider into a drawdown product and withdrawn lump sums when required. This group are unaware of investment risks and their own likely longevity. Our estimates suggest that around 3 in 4 of this group will likely exhaust their pension savings before they die.

Risky business

Decisions are difficult for savers. The here and now is easy to understand, whilst years into the future are hard to imagine.

Lack of understanding could lead people into making short-term decisions that have them:

  • jeopardise their long-term financial wellbeing
  • lose potential returns
  • pay extra tax
  • cease pension payments
  • or get scammed.

Thanks to our personas research, we’re asking the questions: ‘Are we doing enough?’ and ‘What can we do differently for our 5 million plus members?’

Recently, we presented our ‘A journey not a destination’ webinar, which looks at the findings of our ‘New Choices, Big Decisions’ research in detail – a recording is available via the link. It’s essential viewing to help everyone understand how savers approach retirement. We believe the findings show members need simple, good quality products to help them achieve a sustainable income which lasts throughout retirement.

The industry must help savers, many years before they’re planning to retire, realise it’s not a future that can fund itself.

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This article was written when we were B&CE, before we changed our name to People’s Partnership in November 2022.

How UK pensions are withstanding the fallout from coronavirus

Back in March when the world was a genuinely scary place, there was feverish speculation about what the coronavirus pandemic might mean for the pensions industry.

Both privately and publicly, fears were expressed that the economic damage wrought by the both the initial financial shock and subsequent fallout from lockdown measures might lead to a significant exodus from pensions, as financially stressed savers either ceased contributing or drew down on their retirement savings.

In the months that followed, this was a trend that we simply couldn’t see in data relating to our 5 million members. To be sure that what we were experiencing was not idiosyncratic, we commissioned YouGov to conduct a national survey of more than 2,000 UK adults.

We’ve just received the YouGov results and they’re very clear: at this stage at least, those we surveyed with a pension haven’t revised their pension saving habits much, despite the country experiencing its biggest short-term slump since records began and an accompanying rise in unemployment – the largest in 11 years.

Survey findings

According to the survey, the majority (82%) of UK retirement savers don’t appear to have made any changes to their pensions since March 2020, despite the fact just over 4 in 10 of all workers have been impacted by the coronavirus pandemic. Only a very small percentage (3%) have stopped their pension contributions altogether during the past 7 months, while just 2% said that they’ve withdrawn money from their retirement savings.

The survey also indicates that while 2% cut back on the amount of contributions they made, a further 2% have increased their contributions. Of those who took part in the survey, only a minority, 1 in 7 (14%), have even checked the value of their pensions savings since the UK went into lockdown. The same research also reveals that 45% of UK workers have been affected by coronavirus in some way, which includes being furloughed and having wages or hours reduced.

Despite recent research, conducted by a financial services company, suggesting that 1 in 4 people have either reduced or paused pension saving, the YouGov data suggests the effects of the virus on retirement plans appears to be very limited. 1% have been prompted to delay their retirement plans, while 1% of all UK adults with a pension retired earlier than they’d anticipated.

Workplace pensions aren’t of course the only type of pension in the UK and pension organisations may witness different behaviour depending on the type of category of saver for whom they cater. In particular, the experience of those organisations which primarily serve the self-employed might be different from those which cater for employees.

Support from government

Government support for the employed has been an important factor. Subsidising employment has meant that far fewer employees have been confronted with a choice between prioritising short-term needs to generate immediate replacement income over longer-term retirement needs. Subsidy also extended to pension contributions for much of the year. Some categories of the self-employed haven’t benefitted from government support and this may have had an impact.

The survey results indicate how robust the design of auto-enrolment has been. Faced by a once-in-a-century crisis, it has held up very well. Employees who were at an age where they could have withdrawn pots and crystallised nominal investment losses, didn’t do so. Employer contributions and tax relief have helped encourage people to continue to save, even in difficult times.

While the hardship for many is far from over, the early signs suggest that the British public remains steadfastly committed to saving for retirement.

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This article was written when we were B&CE, before we changed our name to People’s Partnership in November 2022.