Pensions fail to convince savers but attitudes are expected to change

Data published by the Office for National Statistics, based on research carried out from July 2014 to June 2016, show that 40 per cent of adults see the workplace pension as the most secure form of retirement savings.

Only 24 per cent of people said they see it as the method of saving for retirement that makes the most of their money, while nearly twice as many (46 per cent) said they thought property is the best option when it comes to funding retirement income.

It’s very possible that in the future we will see minimum contribution levels go up. That would have a knock-on impact on people’s confidence in private pension saving

Daniela Silcock, Pensions Policy Institute

Elsewhere, 32 per cent of those who expected a personal or workplace pension to provide their retirement income were not contributing to one.

Ian Neale, director at Aries Insight, pointed out that "many of those questioned in the period July 2014 to June 2016 will since have been auto-enrolled into a workplace pension and thereby realised the value of their employer’s pension contribution".

Of the 32 per cent who expected retirement to be mainly funded by a pension but who were not contributing at the time they were asked, he believed significantly fewer were likely to respond in the same way when next asked. 

"A concomitant increase in the percentage of the cohort seeing workplace pensions as the safest way to save for retirement may also be expected," he added.

Seeking security when saving for retirement

Nathan Long, senior pension analyst at platform provider Hargreaves Lansdown, said people generally tend to understand property investing better than pensions. Consequently, many people in the UK “still perceive property as being very, very secure”.

Although 46 per cent of people said property comes first as a method of retirement saving, Long noted that people still trust their employers and have confidence in the workplace pension.

He said: “You put some money in, which is topped up by the government, and you get your employer contribution to match that, so in terms of the return you’re getting – it is magnificent right from the get go.”

Source: Office for National Statistics UK

However, Long also said that many defined contribution savers did not understand how and where their money is invested, making it “important to educate those people, even if they’re not going to make any investment decisions”, so they understand that the value of their pension can fluctuate.

He also said that nowadays fewer people are able to get on the housing ladder until a much later age. As people start to feel less comfortable with property as a source of retirement income, Long said more savers will start to understand the value of auto-enrolment.

DB still plays a significant role

Daniela Silcock, head of policy research at thinktank the Pensions Policy Institute, noted that there are quite a lot of changes going on within the workplace pensions landscape, “so it’s actually kind of hard to say how people's attitudes are going to change”.

Like Long, Silcock suspects the percentage of people who see workplace pension as the most secure form of saving might change “as housing becomes less accessible”, and added that for current pensioners and those reaching retirement soon, DB still plays a big role in security.

She said: “It may or may not be the case that the shift to DC changes people’s attitudes.”

Contribution changes will affect confidence in pension saving

However, Silcock also mentioned the issues related to contribution levels, acknowledging that the requirement for an 8 per cent contribution of band earnings is not set in stone.

“It’s very possible that in the future we will see minimum contribution levels go up, and if that is the case then we could imagine that that would therefore have a knock-on impact on people’s confidence in private pension saving,” she said.

On automatic enrolment, Tim Middleton, technical consultant at the Pensions Management Institute, said the envisaged 8 per cent contribution level was too low.

“Unless people are paying in far more to a DC pension than they are at the moment, then that’s not going to be enough to fund a comfortable retirement. It’s certainly not going to allow them to retire early,” Middleton said.