Report shows low awareness of scheme types, pension options or fund investments
The publication this week of research carried out by Ipsos MORI, on behalf of chartered accountant and business adviser Price Bailey, has provided insight into the public’s level of interest and lack of awareness of their pension scheme arrangements and retirement options.
The research – “Workplace Pensions: The Members’ Perspective” – was commissioned by Price Bailey to help bridge the gap between what pension scheme members expect from their pension scheme and the assumptions made by pension scheme trustees. The results will assist trustees to better engage with their members, conduct member value assessments and, as members’ views on responsible investment were sought, review their investment strategies.
Encouragingly, more than half (55 percent) of the 2,017 participants, all of whom are contributing to a pension scheme, agree that they take an active, regular interest in their pension savings. However, when asked what type of scheme they were in, Defined Benefit (DB) or Defined Contribution (DC), more than two in five (42 percent) do not know.
Among those who do not take an active interest in their pension savings and retirement planning, over a third (37 percent) cite a lack of understanding and knowledge as stopping them from being more actively engaged, with one in four (26 percent) saying that it’s too complicated.
The research also set out to establish the most important factors of the members’ pension arrangements. The results showed that a scheme that is well run and managed was ranked as most important by members, with 88 percent rating it as (very or fairly) important, although purely financial considerations – such as returns on investment; low fees and charges; and employer contributions – also ranked highly.
Around half of DC scheme members say they understand the fees charged by their pension scheme very or fairly well, and what these fees pay for. However, almost as many (47 percent) say they do not understand this very well or at all, with around one in eight (13 percent) saying they do not understand at all.
Tom Freeman, Head of Pensions at Price Bailey commented: “The Occupational Pension Schemes (Charges and Governance) Regulations which were introduced last year, require trustees to assess and publicly disclose their value for members’ assessment for the first time. Therefore, determining the value which members place on different factors was one of the most important questions in the survey. We sought the views of members to provide objective evidence to either support trustees’ existing assumptions around what their members value or to identify additional factors which trustees may wish to consider.”
When asked about retirement options, there is some awareness of the options available to DC scheme members, but there is a lack of detailed understanding. A mere one percent of members correctly identified all of the options now available at retirement.
The survey also revealed that a significant proportion of pension scheme members (28 percent) don’t know how long they will need a pension income for after they retire. Among those who did offer an expectation, 55-65 year olds are slightly more likely to say they expect to need an income for no more than 20 years (39 percent) than 21 years+ (36 percent). However, statistics show that life expectancy for a 65 year old is between 21-24 years on average (source: ONS cohort life tables 2014), and so two in five 55-65 year olds (and a third of pension scheme members overall) risk underestimating for how long they will need a pension income.
On the subject of investment more than four in five members (86 percent) say that the overall investment return of their pension is important. However, the report found that members are generally unaware of where their money is invested yet carried strong views on ethical investment, so much so that over two in five (43 percent) would avoid investing in companies which conflicted with their ethical views even if they offered superior investment performance.
Finally, three in five (60 percent) of those surveyed say that they think their employer, or former employer, should be responsible for ensuring that employees understand their workplace pensions. When asked how they would prefer to access financial education and advice about their retirement planning, over half (53 percent) of the sample would be likely to use the web and interactive tools, one-to-one meetings with specialist financial advisers are still popular, mentioned by two in five (44 percent), rising to more than half (52 percent) among the 55-65 age group.
Tom Freeman said: “This research has highlighted what pension scheme members are looking for from trustees and their employers, but also the lack of clarity which they have over how and where their money is being invested, and what the options are when they come to retire.”
“There is a clear expectation on employers to provide scheme members and employees with the education, information and access to advice in a clear, easily accessible form. This is vital to enable members to make informed decisions about their pension and to plan appropriately for their retirement, before it is too late.”
A full copy of the Workplace Pensions: The Members’ Perspective research, with more detailed analysis is available at www.pricebailey.co.uk/pensions-report.