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Changing pensions perceptions, and making it easy to understand

By Sara Neidle
23 February 2023
Financial & Professional Services
Life & Pensions

By Sara Neidle

Over the past decade, we have seen some of the most radical changes implemented in the pensions world including auto-enrolment in 2012, which saw employers enrol their staff into a workplace pension scheme as part of the government's 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, resulting 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 simply 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 thereof, is the real indicator for how successful this transition will be.

As we move from defined benefit pensions (a final salary scheme which provides a regular guaranteed income to last for a person’s retirement) to a defined contribution pension (one where your own contributions and your employer's contributions are both invested), the responsibility falls onto the individual, which means they are having to make difficult financial decisions that they may not necessarily be 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”. Unsurprisingly, 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 are also a complex topic, 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, our communications must improve. 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. In the same way that 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 like 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.