'Behavioural nudges' can boost younger savers' retirement pots by £142,450 - Scottish Widows

Small ‘behavioural nudges’ from pension providers could be enough to improve young peoples’ retirement pot sizes by £142,450, according to analysis by Scottish Widows.

In collaboration with the Behavioural Insights Team, Scottish Widows’ study of 22-29-year-olds found that simple semantic changes could encourage retirement saving, with participants having recommended putting an amount 34 per cent higher aside when asked how much to “invest” in their pension as opposed to how much they should “save”.

Tangible explanations were also found to be a motivator, with suggestions including “a 12 per cent contribution would keep you above the poverty line” and "a 15 per cent contribution would allow for a comfortable retirement" resulting in twice as many participants recommending boosting pension contributions from 8 per cent to 15 per cent.

The study also found that asking respondents about where they saw themselves in the future caused the number of participants who wanted to raise their pension contributions to increase by 11 per cent, equivalent to 800,000 young people saving more.

Scottish Widows said that almost 90 per cent of respondents were either not at all confident, a little confident, or moderately confident they were doing enough for their retirement.

Almost two-thirds (63 per cent) wanted to retire by 64 at the latest but expected to finish working much later, with more than one in five (22 per cent) expecting to either retire after 70, or never stop working.

While financial constraints such as bills and debts were the main barriers to earlier retirement, the two other most common answers were that respondents simply they had not thought about retirement or savings (21 per cent) or did not know how to increase their contributions (15 per cent).

With nearly half (49 per cent) of 22‐29‐year olds having been found to not be saving adequately for retirement before the pandemic, Scottish Widows pointed out that this situation is likely to have intensified as more than a quarter (26 per cent) of 18‐24‐years olds have lost their job or been furloughed.

Scottish Widows head of policy, Pete Glancy, said: “We’re now exploring behavioural science and nudge theory, which we know can play an important role in helping people to save for their future.

“Combined with more systemic reforms to the pensions landscape – such as the removal of the minimum earning threshold – this experiment shows that small interventions could be instrumental in making big changes to the way young people save for retirement.

“We’re looking at how this study can be used to help get more people saving, and we are sharing the results with the industry, stakeholders and charities because real progress can only be made if we work with others to tackle this complex challenge.”

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