New Choices, Big Decisions: Pensions Personalities Revisited

Following on from the most recent study in the series which explores savers’ retirement planning and spending habits after the introduction of pensions freedoms in 2015, this follow-on report looks at the seven personalities in more detail.

The ‘New Choices, Big Decisions’ series explores the evolution of consumer decision making and behaviours under Pension Freedoms – as well as its impact on retirement planning and spending habits. In this latest report, we assess how our brave pension pioneers have been getting on in the five years since new freedoms changed the way people think about their pension money.

The respondents in our research had their own unique priorities, beliefs and preferences, but common themes and traits were also evident across these groups. We revisited seven pension personalities, from the Procrastinating Petes and Paulas, who were overwhelmed by the task at hand, to the I can Do Better Colins and Clares, who’d lost all faith in pensions and would rather have the money in their control.

Five years on, they’re no better informed about the risks they face if they don’t want to buy an annuity. They’ve not been using the time to build the skills needed to make good decisions, nor are they seeking appropriate support. There’s a range of behavioural biases at play which have resulted in them sleepwalking into full retirement with very limited financial plans.

Download our ‘New Choices, Big Decisions: Pension Personalities Revisited’ report

New Choices, Big Decisions – 5 Years On

Five years on from the introduction of Pension Freedoms, new research by The People’s Pension and State Street Global Advisors has shown that mature savers are sleepwalking into retirement. They risk running out of Defined Contribution pension savings and, with a third of their retirement still to come, could spend their later years reliant on the state pension.

In-depth research by consultancy Ignition House explores both retirement planning and spending habits following the introduction of freedoms in 2015. The study reveals that people nearing retirement want their pension provider to supply a safe, guided path into retirement – rather than the complex decisions with which they’re now faced.

The new research centres around interviews with 50 savers and shows how policymakers, and the industry as a whole, have built a system that relies on unrealistic assumptions around how people behave to work effectively.

Key findings include:

  • Savers are scared of planning for the future as they don’t want to discover the ‘truth’
  • Savers also underestimate the financial risk of growing old and don’t understand how inflation can impact their savings
  • The typical saver follows the path of the least resistance – they won’t leave a product or change a drawdown withdrawal rate once they have signed up

Download our ‘New Choices, Big Decisions: 5 Years On’ report

Workplace defaults: better member outcomes

Switching from a pension default fund could cost ‘DIY’ investors up to £247,000.

Our new research with State Street Global Advisors shows that DIY investors risk missing out on up to £247,000 by switching from their workplace pension scheme’s default investment strategy and making their own fund choices instead.

Workplace defaults: better member outcomes reveals the potential cost of 4 of the most common mistakes made by pension savers who choose to be their own investment manager rather than investing in a default fund.

It shows how different savers, who display particular behavioural biases, perform over 4 decades, compared to someone who stays invested in a well-run default fund throughout.

The saver profiles include:

  • Cautious Connor – doesn’t like taking risks so invests in a cash fund
  • Performance chasing Patricia – buys high into a strongly performing fund
  • Eggs in one basket Elliot – fails to diversify his portfolio
  • Forgetful Fiona – is initially an active investor but fails to keep her portfolio under review

The report also focuses on the lack of knowledge around charges paid on pension pots, with almost 8 in 10 (78%) of savers unaware that a fee is taken from their pot1.

Download our ‘Workplace defaults: better member outcomes’ report

1 Source: The FCA Financial Lives Survey found that 78% of defined contribution savers were not aware of charges on their pension.

Response to TPR’s annual commentary and analysis report

Response to TPR’s annual commentary and analysis report

Commenting on TPR’s annual commentary and analysis report, Gregg McClymont, director of policy at The People’s Pension, said: “It’s fantastic to see that a growing number of people in their twenties are saving into a workplace pension thanks to the success of automatic enrolment, but millions of workers are still missing out because they’re too young, work part-time or don’t earn enough.

“While it’s encouraging that as many women as men now saving into a workplace pension, we can’t ignore that women are still significantly worse off than men in retirement and much more needs to be done to address this inequality.

“Lowering the age limit for auto-enrolment to 18; calculating people’s pension contributions from the first pound they earn; and reducing the amount someone needs to earn to be eligible for a pension could put billions more into savers pension pots, bring more women into pension-saving, and help hundreds of thousands of younger workers save towards their future.”

ENDS

Should I Stay or Should I go

Should I Stay or Should I go

Official statistics released by the Department for Work and Pensions show that just under one in ten of those who are eligible have chosen not to take part in their workplace pension, so we were interested to find out about the drivers behind this behaviour and what the final impact of the last increase in contributions in April 2019 will be.

The Research

The People’s Pension and SSGA co-sponsored a qualitative assessment with an independent research agency – Ignition House to understand why a group of individuals who had been offered a workplace pension had chosen not to join, as well as a group of individuals who had joined their workplace pension but had since chosen to stop their contributions.

Participants

Ignition House found 30 participants for the study – 22  people aged 22 to 60 who had been offered a workplace pension and had chosen not to join (opt out respondents) and a further 8 people aged 22 to 60 who had joined their workplace pension, but had chosen to stop their contributions (cessation respondents).

Method

Exploratory in-depth discussions were carried out to understand the drivers behind this behaviour and to understand what the likely impact of the increase in contributions in April 2019 will be.

Respondents came from a variety of backgrounds and experiences.  A mix of people by age and gender, along with those working or small and larger employers across a broad mix of sectors were recruited.

Outcome

The research shows that opting out was merely a timing issue i.e. it hadn’t been the right time to start saving into a workplace pension scheme.

Other aspects identified included:

  • There was little evidence that employers were seeking to discourage people from joining the scheme
  • Little was done by employers (apart from large employers) to sell the benefits of auto-enrolment savings
  • Some had misconceptions of the rules of auto-enrolment, including the perception that they needed to opt in but reframing and better information led to a “lightbulb moment” for example employer contributions being “free money”
  • There was strong support for re-enrolment, as a “nudge” for them to reconsider
  • The future impact of phasing was not clear cut.

Read the full report from Ignition House

Should I Stay or Should I Go?

Just under 1 in 10 people eligible for a workplace pension chose to opt out – according to the Department for Work and Pensions in 2018. So we worked to uncover the drivers behind this behaviour and what the final impact of the last increase in contributions in April 2019 could be.

Alongside State Street Global Advisors and Ignition House we worked to understand why people would opt out of a workplace pension or choose to stop saving into one.

The research shows that opting out was merely a timing issue – it hadn’t been the right time to start saving into a workplace pension scheme.

Other aspects identified include:

  • There was little evidence that employers were seeking to discourage people from joining the scheme
  • Little was done by employers (apart from large employers) to sell the benefits of auto-enrolment savings
  • Some had misconceptions of the rules of auto-enrolment, including the perception that they needed to opt in, but reframing and better information led to a ‘lightbulb moment’, for example employer contributions being ‘free money’.

Download our ‘Should I stay or should I go?’ report

Employee & employer attitudes to workplace pensions

With the huge success of auto-enrolment, we were interested to find out what employees and employers really thought about pensions as a workplace benefit.

Our research, conducted by YouGov, revealed that employer pension contributions are among the most valued employee benefit, yet around half of businesses are failing to realise their worth.  This means employers could be missing a trick with how their workplace pension scheme can help to attract and retain employees.

Our survey of 500 human resources professionals and more than 1,000 employers across the UK highlights how employers can play a significant role in helping their staff maximise the value of their pension savings but also benefiting their business by helping them to recruit and retain staff.

Download our ‘Employee and employer attitudes to workplace pensions’ report