It is an industry mantra that pensions are boring and clients are not interested. Recent studies seem to back up the view that engagement with pension savers in the UK is woeful, and boredom – or perhaps lack of interest – is to blame.
A recent study by the Behavioural Insights Team for Pension Wise, taken in an effort to boost client engagement, found that pension savers receiving their ‘wake-up statement’ - usually sent six months before retirement – were being put off taking sensible action on their pensions, like shopping around for an annuity, because the statements were too complex and baffling. This has to change.
Many pension savers have lost money as a result of lack of action, which is a crying shame. Many will face a poorer retirement as a result. They would be poorer for failing to act because their engagement with pensions and retirement was minimal at a critically important time.
Many pension savers have lost money as a result of lack of actionThe team found that giving pension savers a A4 single sheet ‘pension passport’ stating clearly what their pension pot was worth in cash terms worked wonders in boosting their interest. When consumers find out their pension pot is worth £250,000 or whatever, and they can do what they like with it they start to show some interest.
I do not wish to add to consumers’ bafflement or paperwork, but it would seem logical to me at the same time to give them the names of half a dozen well-qualified financial advisers who could help give them advice on maximising their retirement income and, if necessary, explain their full statement and the implications of not acting on it.
The failure to encourage consumers to engage fully with their pensions is one of the great financial disasters of the age and it need not be this way. As they are not interested, or just put off, the temptation is for them to either do nothing, make a quick, but poor choice, or to just ignore the calls to action. At the same time, they will spend hours buying car insurance for £250 online because they have to by law. Utter madness when you think about it objectively.
Another survey recently cited by Alliance Trust Savings, based on consumer research, found that only 30 per cent of middle income earners aged 45-55 actually had any financial plan for retirement. This provides huge potential for advisers to help this group, but it again highlights the woeful lack of preparation that most people have for retirement.
When it comes to planning for later life, most people would rather spend their time preparing and planning for their next holiday than scrutinise their pension statement. Retirement planning is nowhere near the priority it should be, even for those only a few years away from retirement, so something is not right.
Some factors are clearly at work. We could summarise them as the three Bs: boredom, bafflement and it will ‘be all right in the long run.’
While I have been very sceptical about the pension freedoms, or rather the potential abuses of the freedoms, I think they have been a major boost to pensions awareness and engagement, along with auto-enrolment (AE). The rise in the number of pension transfers has confirmed that fact.
What people are waking up to is the fact their pension is possibly worth hundreds of thousands of pounds and that buys a lot of cruises or holidays in the sun or even sports cars, if that’s your bag. What they are not waking up to is how to wisely use this long-planned for ‘windfall’.
We need a major change in attitude and engagement and reports are fine and dandy but action is needed. For a start, pension schemes and providers need to be encouraged to do much more for clients to raise their ‘consciousness’ of pension savings. Sending them a confusing 40-page document full of numbers produced automatically by a computer and hoping for the best is not going to do it.
They need to arrange seminars, ring pension savers up and talk to them, nudging them vigorously to consider what they need to do with their pension and when to take action, preferably via an adviser or, if this not affordable or practical, then via Pension Wise or another similar service.
It is not acceptable that so many people are squandering what is probably their greatest asset.
The Alliance Trust study, based on consumer research from Boring Money of more than 1,000 consumers, found that 13 per cent of people had no idea when they could retire (bear in mind that some would have been nearly able to retire immediately at 55 when they were surveyed) and 25 per cent of the total sample planned to carry on working indefinitely.
I am a big supporter of people having the flexibility to continue working past the normal retirement age if they want to, but I seriously doubt that one in four people want to work until they drop. They need a plan.
Kevin O’Donnell is a financial writer and journalist
