By the middle of March 2014 more than three million workers had been automatically enrolled into a workplace pension scheme or, as the DWP’s ad campaign puts it, they were all ‘in’. But we suspected that this didn’t mean that they were engaged with or feeling positive about being ‘in’.
To check our suspicions we commissioned some in-depth, qualitative research, in partnership with the Pensions Management Institute. We had conducted a similar exercise with the Irish Association of Pension Funds in 2013, among Dubliners. That research showed that while the idea of retirement was, on the whole, seen in a positive light, a pension plan was viewed as ‘a grey product for grey people’.
This year we asked similar questions to a group of Londoners, some of whom had gone through auto-enrolment. We wanted to see pensions through the eyes of the people at whom auto-enrolment is aimed. Were they more positive about pensions as a way of saving or were they similarly disengaged? And what did they see as barriers to saving more?
The research uncovered a reluctance to plan for retirement and worrying levels of negativity about pensions. This suggests that, unless action is taken to address these issues, it is likely that auto-enrolment will fail. When contribution levels increase, employees will not bother to find out why, and what they could get for saving more, and may simply opt out. And those who remain ‘in’ won’t realise what they can do to make being ‘in’ worthwhile.
Unwillingness to plan - “I let life happen to me. If you sit and plan, you’ll be disappointed.”
Planning is key to saving for retirement effectively. The focus groups had very different attitudes to planning, shaped by their life experience so far. As a group, they had experienced easy credit and student loans, and some had let their spending spiral out of control as a result. While the majority had managed, to some extent, to recover their position, and were now budgeting or trying to keep to a budget, their financial planning was very much centered on day-to-day living expenses.
“I don’t want to plan ahead to retirement. You never know what’s going to happen.”
A financially secure retirement is unlikely to be a reality – “People can’t afford to retire now, so what hope is there for us?”
The groups viewed retirement as being a release from work: a chance to be free to please themselves, to get some ‘me time.’ But it seemed most of them felt that such a retirement would be an impossibility. There was a hard streak of realism emerging in terms of:
a) whether they would ever be able to retire,
b) possible poverty, such as being unable to afford heating bills,
c) and the likelihood of medical bills and care as retirement progresses.
As one noted, they saw: “Old grey hair, walking stick and a blanket – the complete sad story – because I won’t be able to afford to pay the bills. I’ll have a bus pass and that’s all.”
However, they did not seem to feel that they could do much about it through a pension or showed a willingness to do so. Such a retirement was “not a very motivating thing to save for”. Instead, they saw property as a better way to secure a nest egg. In their view, property was tangible whereas a pension was more of a remote concept.
“It’s easy to think of your property as your retirement.”
Saving into a pension is too risky – “It’s a gamble because it’s an investment. Pensions can get invested in some dodgy things.”
There was general consensus that pensions could not be trusted. Even those in a pension saw them as confusing, risky, complicated and a rip-off. The groups showed little understanding of how pensions work, and had little faith that they would get their pension when they came to retire.
“The impression I had of pensions was – you pay this money in, but you might not get it back.” And, when it came to making investment choices, “I wouldn’t know how to go about putting £1,000 in a pension.” “I wouldn’t know where to start.”
Those who were more positive about pensions were so because of direct family experience. The government may have hoped that pensions would become a water-cooler subject, with their ‘we’re all in’ campaign. However, those who had positively chosen to be in a pension scheme seemed to have done so having seen the positive experiences of their parents and grandparents. For this group of ‘haves’, pensions were seen as helpful, very important and giving you peace of mind. For the ‘have nots’ though - those who hadn’t seen their parents benefit from pensions, and were not in a pension themselves - pensions were seen as not worthwhile; a view that it seemed no one was doing anything to contradict. And even those who saw pensions positively did so instinctively rather than because they understood what it was all about, which meant that many remained on very low levels of contribution.
Pensions are too dull – “We had a pension meeting at work and I by-passed it. I thought it would be so boring.”
The research showed that there seems to be little attempt to communicate pensions effectively. When people did get information, they didn’t tend to read it or, if they did, they didn’t understand it. They relied on the fact that everyone had been given the information and so, if there had been something dodgy about it, someone would have said something.
And it seems that for this group of people, at least, the ‘Workplace pensions. We’re all in.’ campaign is making little difference. In fact, it seems to be confusing them.
“All these ads – ‘are you in?’ I just don’t understand it.”
“There’s an ad – ‘are you in’? … You don’t really watch it because it’s a bit serious and you think it’s not really relevant, and I’m too busy shopping on my iPad.”
“Is this if you haven’t got any other pension? Or the state pension? I don’t know.”
But there is hope - “Now we’ve spoken, I’m quite worried. Before, it was a distant thought. I’m sitting here making plans to save.”
“This is happening to everyone. There’s too much mistrust. It’s reality. I feel really positive now. Now I know I’ve got to have a plan.”
During the focus groups, it seemed that taking part in the group – sitting down and talking about pensions – was actually helping. The groups were starting to ‘get’ pensions, and were coming up with ideas about how pensions could be made more engaging. They were particularly taken with the idea of thinking of pensions as a savings plan, although some doubted that it was a true comparison – “But with a savings plan you get interest! With a pension pot you just put money in and hope for the best…”
And each group, unprompted, suggested that personal finances should be taught in school. “Think of the crap we learned at school. We had to do a compulsory sex education session. Why not do financial?”
Financial education is set to become compulsory in schools from September 2014. But obviously we cannot rely on that to help today’s employees. The research shows that there is an appetite to understand more about planning for retirement, and that people are making genuine efforts to budget. But it also shows that employers and the pension industry are not doing enough to encourage pension savings. Being ‘in’ is not enough. People need to be helped to understand why they are ‘in’ and how they can make sure that being ‘in’ gets them the retirement they say they want, rather than the one they will get if they don’t take action!
The negativity around pensions and planning for the future can be reversed – if time is taken to communicate effectively.
We need to actively market pensions as a product that we should all aspire to have. And to do that, we need to remember to look at pensions through the eyes of employees, not through ours as pensions experts.
For a copy of the research, click here.
Nigel Ferrier is executive chairman, Ferrier Pearce