In this blog for IFA Magazine, Sara Niedle, Director at SEC Newgate, reflects on how and why we all need to work together if we are to turn the tide on the savings and pensions gap.
As advisers will know only too well, over the past decade, we have seen some of the most radical changes implemented in the pensions world. There was ‘auto-enrolment’ of course, back in 2012, which saw employers enrol their staff into a workplace pension scheme as part of the governments initiative to get people to save more for retirement. Then we had massive pension reforms in 2015, known as ‘Pension Freedoms’ which gave consumers more choice and flexibility to access their pension savings from the age of 55.
Yet despite all these measures, people are still not saving enough, and have limited understanding of their retirement options. A report last week from ‘The Future of Global Retirement’ reported that almost one in three British people don’t have a clear idea of the options available to them in retirement. Worryingly, it was also revealed that one in five of those aged 55+ have a knowledge gap with their retirement options.
With the current environment – inflation, rising costs, increase in the cost of living – people are increasingly concerned about whether they can meet day-to-day costs, and it has resulted in people having to reassess their financial positions, and ways of investing and saving.
Interestingly, the perception of retirement has changed. People now see retirement as a transition rather than a one-off event. Gone are the days when someone would just have an expiry date for finishing up work. Now, the process can take years. Yes, cost of living is a factor – but a person’s retirement planning, or lack of planning, is the real indicator for how successful this transition will be.
As we move more from defined benefit pensions to defined contribution schemes, the responsibility falls onto the individual. This means they are having to make difficult financial decisions which they may not be necessarily ready or qualified for.
Research conducted by Ipsos Mori on behalf of DWP found that attitudes towards pensions were characterised by “detachment, fear, and complacency”, which acted as “barriers to engagement”. Unsurprising, it was also found that not knowing how to assess pensions and what it meant for their future acted as a barrier to engagement. Understanding the behaviour of consumers is vital if we are to help improve pension outcomes.
Pensions is also a complex topic and full of jargon, which makes the job for anyone trying to motivate consumers even more difficult. To get started, we need to engage people with pensions and educate them on the options available to them years before retirement hits. The government has put a series of measures in place to help, but unless you have user friendly technology, better tools and invest in education, it is very difficult to do this.
We need to change this retirement perception before it is too late. It needs a step-change, a positive spin on it, looking at different methods to engage with consumers when they are at home, with friends or at work; as well as using impactful language that will mean something to them.
We need to move away from this negative image towards a positive one. As part of this, we need to improve our communications. Rather than inspiring fear of failing to save enough, we need language that gets people excited, that encourages employees to engage with their schemes, wanting to find out more. Just like how people are using banking and shopping apps, a similar experience is required to keep employees switched on enough to take control of their pension.
Communication of pension and retirement issues must be simplified and made more relatable by making it easier to understand what’s available. Tools such as the pensions dashboard will help, but it’s also the responsibility of employers, retirement planners etc, to help with this journey. Now is the time for the pensions industry to show consumers that they understand what they want and the options available to them. Consumers need to have a better understanding so they can make the right decisions well before retirement approaches.