From the blog: Heralded as a "tremendous success" by the Work and Pensions Committee in its May report, it’s true that auto-enrolment has opened up retirement saving.
Yet getting more people saving does not mean they will understand what they’re putting money into, or that their faith in the pensions system will increase.
Most worryingly, stark disparities persist between the well-off and the lower paid when it comes to understanding pensions.
Yet getting more people saving does not mean they will understand what they’re saving into, or that their faith in the pensions system will increase.
Source: Defined Contribution Investment Forum
Most worryingly, stark disparities persist between the well-off and the lower paid when it comes to understanding pensions, according to the latest consumer research from the Defined Contribution Investment Forum.
The 'Engagement Barometer' shows that those in higher socioeconomic groups have greater engagement with their pension saving. Respondents earning more than £40,000 were 80 per cent more likely to know where their funds are invested.
More than a third of those whose earnings exceeded £40,000 made an active choice about their investments, compared to 22 per cent of those earning less. All in all, higher earners were more than 50 per cent more likely to make an active choice.
Source: Defined Contribution Investment Forum
The research also reinforces the fact that an engagement and savings gap between men and women perpetuates. Nearly half of the men surveyed professed to know where their pension was invested, compared with only 29 per cent of women. Meanwhile, women report an average of £7,500 in defined contribution savings, compared with £14,500 for men.
Another worry is that despite the fact many are undersaving, members of pension schemes don’t have a clear plan for living in retirement. Well over half (64 per cent) expect their DC plan to pay a sum that falls below their income requirements in retirement, with half of those people expecting a pension income that is worth less than 30 per cent of their salary.
Source: Defined Contribution Investment Forum
It is clear from this that many people don’t seem to have a plan for living in retirement. Consumers apparently think their pension will be sufficient to sustain them but, given that UK households’ saving levels fell to the lowest rate on record at the end of 2015 according to the Office for National Statistics, is it realistic to depend on them?
It is also discomforting to see that engagement levels are so clearly delineated by income level.
Auto-enrolment was created to bring the disengaged into the pensions fold and help them to engage with their savings for a more comfortable retirement. Phase one has been a great success, but these findings illustrate the importance now of focusing on overcoming the next hurdle: engagement.
Louise Farrand is executive director of the DCIF
