Putting pensions within reach

More than half of adults do not make pension contributions due to financial pressure, ONS research finds. The ONS Wealth and Assets Survey is carried out every two years and gives a snapshot of how under-60s are treating their retirement planning. The latest release covers the period between April 2018 and March 2020.

The research reveals that huge numbers of the British public risk a retirement struggle as they neglect their pensions due to low incomes, debt and lack of awareness around how pensions work.

Just over half (54%) of adults say they do not pay into a pension due to low income or being unemployed. More than two in ten people say they could not afford to save into a pension in general, while 16% had too many expenses - such as bills or debts - to do so.

The proportion of people not making pension contributions due to financial pressure was 48% for men and almost 60% for women. At a regional level, the reasons quoted above were highest for adults in Wales (61%), the North East (61%), Yorkshire and the Humber (58%) and London (58%). 

One in ten British adults overall say they do not save into a pension because they do not understand them, but this varies considerably across age groups - 16% for the 30-39 age range, below 12% for 16-29, 8% for 40-49-year-olds and just 5% for those aged 50-59. 

Some 6% said it was too early to start a pension and 8% preferred alternative ways of saving. Other reasons given were not being interested in pensions or not having the time to set one up (6%), not trusting pension companies or schemes (4%), or having changed jobs recently (4%).

How did we get here?

Going back a decade, it was recognised that financial education alone would not be impactful enough or be implemented quick enough to move the dial on positive retirement outcomes.  A compulsion to save was required and since 2012, more than 10 million people have been auto enrolled into workplace pensions.  Whilst this is a success, around one million (equating to around 9%) have opted out, contribution levels hover around the minimum, and younger workers and the self-employed have the lowest pension provision. Some research suggests that 1 in 10 pension savers overall have stopped making contributions due to the pandemic (Ref. 1).

Broadly speaking, people are feeling encouraged to save, but research demonstrates  that people are still confused about what they can accumulate and ultimately, they are feeling vulnerable. Pensions scams are on the rise and of the 650,000 pension pots accessed for the first time in 2018-19, 400,000 were accessed without regulated advice, of which more than three in four were taken without a Government Pension Wise guidance appointment

There are a myriad of pension tools and calculators on the market. The problem is that consumers have to be motivated enough to find and use them.  

Even then the tools typically contain a lot of assumed knowledge and seem divorced from the user’s current situation and budget. 

How do we move forward?

Affordability is a real challenge for people that have seen their income cut, and as the furlough scheme ends and redundancies increase, financial literacy initiatives cannot solve this.  However, for those in work, new tools and techniques have shown that with no change in the attitude or savings behaviours of employees, the capacity for saving can be increased.

For example, by combining Moneyhub’s ability to categorise consumer expenditure, Aon’s Well One Money benefits marketplace can hyper-personalise retail discount offers. As a result, the average user is able to save over £70 per month or £840 a year, with no change in their spending habits. This can be swept to pay debt down, moved to savings, or invested in a pension.

Personalisation and the use of nudges is at the heart of Mercer Money, powered by Moneyhub.  Within 6 months, 40% of users were making additional pension contributions. Using Moneyhub’s Content Hub functionality, personalised content is served to employees – blogs, articles, videos and even a pension rap!

Unlike static traditional retirement planners, the ability to link current finances and affordability to longer-term outcomes is a game changer in helping to overcome some of the barriers to pension saving.  

Using our Open Banking powered retirement calculator, Moneyhub Personal Financial Management (PFM) platform, users can not only manage short-term budgets, but also have far greater insight into what they need to save for the future – and how they can afford to fund a comfortable retirement income. 

Bolt-on Moneyhub’s Wealth Management and Investment platform, advisers or family members can even spot scamming activity on vulnerable customer accounts – a topic for our next blog post.

In such uncertain times, having a financial coach in your pocket to deliver personalised guidance has never been more valuable.


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Author

Vaughan Jenkins

Vaughan is an experienced Sales Director with senior industry experience in financial services, especially the life and pensions, asset management and wealth sectors. He co-authored ‘The Insurtech Book’ and has worked as an associate and consultant to a number of businesses.  

References:

  1. Scottish Widows