Pandemic has helped workers to save more – latest research

Nearly three in 10 people (29 per cent) have been able to save more money since the beginning of COVID-19, and latest research shows how the pandemic has impacted people differently depending on what jobs they have.

A YouGov survey, conducted on behalf of The People’s Pension1, shows that more than a third (37%) of those described as ABC1s, who tend to occupy managerial and supervisory positions, have been able to save more since March 2020, compared to 20% of C2DE workers, who are typically in manual and lower paid jobs2. The regions where the highest proportion of people said they were able to save more include; Yorkshire and the Humber (36%), East Midlands (35%), South East (35%) and Wales (33%). Whereas the regions least likely to have saved more are: North East (20%), Northern Ireland (22%), North West (23%) and South West (24%).

The poll also shows that 1 in 20 UK adults (5% ) have increased the amount they save into their pension since the beginning of the pandemic (March 2020) with 6% of ABC1s achieving this, compared to 3% C2DEs.

The survey of 2,163 adults , conducted as furlough came to an end, shows that since the pandemic began:
• 2% have been left out of work
• 9% say they have earned significantly less
• Two thirds of pension savers (67% haven’t felt the need to engage with their pension
• 3% withdrew money from their pensions

The survey follows recent figures from the Department for Work and Pensions3 that show that overall saving into UK workplace pensions in 2020 rose by £5.5bn to £105.9bn.

Phil Brown, director of policy and external affairs at B&CE, provider of The People’s Pension, said: “This research confirms that the economic fallout from the pandemic has impacted people differently, depending on how much they earn and where they live. It’s very interesting to see that nearly three in 10 adults (29%) have been able to save money due to the fact they have spent a lot less on holidays and going out.

“The results of our survey also reinforce the importance of saving into a pension, something that people have continued to do during a time of great economic uncertainty.”


Why a pension statement season might negatively impact engagement with savers

Encouraging more people to engage with their pensions is something everybody in the industry should agree with and we very much welcome initiatives which will help improve this.

It’s been known for some time that a pension statement season – when all providers would be compelled to send out statements during the same narrow window – was being discussed within the Department of Work and Pensions. Now, following the Pensions Minister’s recent address during the Pensions and Lifetime Savings Association conference, we know that this is an idea which could become a reality.

It’s widely known that many people don’t usually read their pension statements. Schemes send them and too often they languish unread. There’s little point in the simplified statements, which will be introduced in a year’s time, especially if they get sent out and are unread like previous communications. Policymakers are of the belief that a pension statement season will prompt more people to engage with their pensions but there are genuine concerns within the industry that any such policy might lead to unintended consequences.

Questions to be answered

Those of us charged with delivering such a significant change have questions about how it would really work and what the impacts of a statement season would be on savers.

As the biggest independent master trust in the UK, The People’s Pension has 5.4 million members. If we were to send out statements to all our members during a month, that would be 180,000 statements posted a day. It costs roughly £1 per paper statement, a figure that doesn’t vary much between providers. So, if the government mandates paper statements it could cause additional costs, which may be passed to pension savers through charges.

Then there’s the likely impact on customer service teams, rather like the one I oversee. Currently we phase sending out statements due to the increase in contact from customers after they’ve received them as, often, the notification of a statement acts as a trigger to transact with us.

We expect that a statement season will concentrate all the customer contacts into a short window. This could lead to a saver’s first engagement with their pension provider being a negative one as they may have to wait for an unacceptable period or be unable to get through.

There’s often an assumption that you can just scale up and scale down these operations to meet demand, but sadly that’s not how it works. We’re administering people’s life savings and you need to be able to trust the people you have doing that. Trust means training, knowledge, skills and expertise and that takes time. There isn’t a pool of people out there you can just draw on at short notice to fill gaps in your operation – especially if every other pension provider has the same problem.

Potential for saver frustration

It’s likely that the main impact of a statement season will be saver frustration. There also won’t be a major lift in engagement when measured over the course of a year – at least not for some time. Concentrating engagement into a short period will overload contact centres and degrade the experience people have talking to their pension provider.

People contact us for a variety of reasons; some to see how their savings are doing, while others ring up because they are dealing with the death of a family member or because they need quick access to their savings. It’s people like this we’re especially worried about as an overloaded call centre could prevent them from getting through when they need support the most.

We understand the intention behind this proposal, but we remain concerned that the government’s plan to improve engagement will result in frustration rather than meaningful engagement.

Our role in helping savers fund their future

We revisit our ‘New choices, Big decisions Pension Personalities’ research and the savers most at risk if we don’t find simple ways of communicating the complexities of retirement options to them.

A great success, but what now?

Next year marks the 10-year anniversary of auto-enrolment (AE). It’s been a resounding success, having helped more than 10 million people to start saving for retirement.

But more than 6 years after the introduction of pension freedoms, significant concerns linger about how to ensure savers make wise retirement choices.

Given the success of auto-enrolment was based on inertia, it would seem odd that the pensions industry would assume all savers should suddenly understand the complexities of retirement options and take control of their retirement planning.

It’s alarming to see how many savers are sleepwalking into retirement. To avoid poor saver outcomes, what’s needed are simple, good quality products that meet AE savers’ needs – built to provide a sustainable income to last their whole retirement. These factors combined should further support and help them to avoid making ill-advised decisions.

New choices, Big decisions

In our quest to make pensions work for everyone, our New Choices, Big Decisions Pension Personalities Revisited research showcases the challenges faced and decisions made by many approaching retirement.

We’ve followed a group of people since pension freedoms threw the shackles off how they can take their pensions savings and found they divided into 7 subgroups, with distinct characteristics. We’ve given these subgroups personas. Let’s consider a few that concern us the most.

Leave it Larry and Linda

Are so overwhelmed by the complexity of pensions information that, recently, they’ve decided to leave their pension savings untouched. Their savings were ‘out of sight, out of mind’ unless a life event – typically illness or redundancy – changed their plans. Lacking information, they’ve not made any decisions about their pensions for now.

Spend it Simon and Sally

They were initially pleased to take their 25% tax-free cash to spend on holidays, home improvements, or new cars but haven’t planned how to manage their pension pot. Instead, they’ve just rolled it over with their pension provider into a drawdown product and withdrawn lump sums when required. This group are unaware of investment risks and their own likely longevity. Our estimates suggest that around 3 in 4 of this group will likely exhaust their pension savings before they die.

Risky business

Decisions are difficult for savers. The here and now is easy to understand, whilst years into the future are hard to imagine.

Lack of understanding could lead people into making short-term decisions that have them:

  • jeopardise their long-term financial wellbeing
  • lose potential returns
  • pay extra tax
  • cease pension payments
  • or get scammed.

Thanks to our personas research, we’re asking the questions: ‘Are we doing enough?’ and ‘What can we do differently for our 5 million plus members?’

Recently, we presented our ‘A journey not a destination’ webinar, which looks at the findings of our ‘New Choices, Big Decisions’ research in detail – a recording is available via the link. It’s essential viewing to help everyone understand how savers approach retirement. We believe the findings show members need simple, good quality products to help them achieve a sustainable income which lasts throughout retirement.

The industry must help savers, many years before they’re planning to retire, realise it’s not a future that can fund itself.

Retirement poll reveals desire for trusted guidance

Survey reveals that pension savers want trusted guidance to help them secure a good retirement

Three quarters (75 per cent) of UK adults who have a pension say that they would consider taking guidance about how to make their savings last throughout retirement from a pension provider with a legal duty to put their interests first, a new survey has revealed.

The YouGov1 survey was commissioned by leading workplace pension provider The People’s Pension2, following the publication of the ground-breaking New Choices Big Decisions3 report earlier this year, which, based on extensive interviews, found that many older savers are sleepwalking into retirement and run the risk of running out of pension savings years before they die. This study was first launched following the introduction of pension freedoms4, which has meant that individuals either must make a choice between a variety of financial products to finance their retirement or withdraw their pension savings.

The survey presented respondents with a selection of options for spending their pension savings during retirement. It found that nearly four in ten (37 per cent) of those who are saving for retirement would be prepared to be guided towards taking a pension that was split between giving them a guaranteed regular income (an annuity) and the rest as a flexible income pot (drawdown) after taking the tax-free lump sum up-front. A further 35 per cent chose a guaranteed regular income (an annuity) only option after taking the tax-free lump sum.

The survey also highlighted how unprepared for retirement planning many people are:

  • More than a third (35 per cent) don’t know when they will retire. For those aged 55 and over, more than a fifth (22 per cent) are uncertain of when they will stop working.
  • Just over one in ten (12 per cent) knew or guessed the weekly value of the UK State Pension5. This knowledge is as low as three per cent for 18-24 year olds and is only as high as 25 per cent for those aged 55 and over. 
  • Just under half (48 per cent) said they don’t know how long their retirement savings will need to last them, including 45 per cent of those aged 55 and above.
  • Nearly three in ten (28 per cent) of everyone surveyed, say they have no idea what to do with the savings they have built up for their retirement. 

Phil Brown, the director of policy and external affairs at B&CE, the provider of The People’s Pension, said: “This latest research  provides further evidence that pension savers are crying out for guidance about how they should approach retirement. It’s clear there is an opportunity for the industry and master trusts are well placed to meet it.

“Master trusts have an opportunity to develop the retirement products which will meet the needs of many for security as well as providing flexibility. This means a coming of age for well-governed auto enrolment schemes – as they move from being saving vehicles for employees to also providing their pensions in retirement.”


How UK pensions are withstanding the fallout from coronavirus

Back in March when the world was a genuinely scary place, there was feverish speculation about what the coronavirus pandemic might mean for the pensions industry.

Both privately and publicly, fears were expressed that the economic damage wrought by the both the initial financial shock and subsequent fallout from lockdown measures might lead to a significant exodus from pensions, as financially stressed savers either ceased contributing or drew down on their retirement savings.

In the months that followed, this was a trend that we simply couldn’t see in data relating to our 5 million members. To be sure that what we were experiencing was not idiosyncratic, we commissioned YouGov to conduct a national survey of more than 2,000 UK adults.

We’ve just received the YouGov results and they’re very clear: at this stage at least, those we surveyed with a pension haven’t revised their pension saving habits much, despite the country experiencing its biggest short-term slump since records began and an accompanying rise in unemployment – the largest in 11 years.

Survey findings

According to the survey, the majority (82%) of UK retirement savers don’t appear to have made any changes to their pensions since March 2020, despite the fact just over 4 in 10 of all workers have been impacted by the coronavirus pandemic. Only a very small percentage (3%) have stopped their pension contributions altogether during the past 7 months, while just 2% said that they’ve withdrawn money from their retirement savings.

The survey also indicates that while 2% cut back on the amount of contributions they made, a further 2% have increased their contributions. Of those who took part in the survey, only a minority, 1 in 7 (14%), have even checked the value of their pensions savings since the UK went into lockdown. The same research also reveals that 45% of UK workers have been affected by coronavirus in some way, which includes being furloughed and having wages or hours reduced.

Despite recent research, conducted by a financial services company, suggesting that 1 in 4 people have either reduced or paused pension saving, the YouGov data suggests the effects of the virus on retirement plans appears to be very limited. 1% have been prompted to delay their retirement plans, while 1% of all UK adults with a pension retired earlier than they’d anticipated.

Workplace pensions aren’t of course the only type of pension in the UK and pension organisations may witness different behaviour depending on the type of category of saver for whom they cater. In particular, the experience of those organisations which primarily serve the self-employed might be different from those which cater for employees.

Support from government

Government support for the employed has been an important factor. Subsidising employment has meant that far fewer employees have been confronted with a choice between prioritising short-term needs to generate immediate replacement income over longer-term retirement needs. Subsidy also extended to pension contributions for much of the year. Some categories of the self-employed haven’t benefitted from government support and this may have had an impact.

The survey results indicate how robust the design of auto-enrolment has been. Faced by a once-in-a-century crisis, it has held up very well. Employees who were at an age where they could have withdrawn pots and crystallised nominal investment losses, didn’t do so. Employer contributions and tax relief have helped encourage people to continue to save, even in difficult times.

While the hardship for many is far from over, the early signs suggest that the British public remains steadfastly committed to saving for retirement.