BLOG: Pension awareness isn’t just knowing you have one, it’s knowing whether it will be enough.
Back in 2014, the defined contribution framework looked very different, and retirement decisions were relatively straightforward.
Around three-quarters of those retiring used their pension savings to purchase an annuity, exchanging a pension pot for a guaranteed income for life. Automatic Enrolment was still in its infancy, having launched only two years earlier. While this has been tremendously successful in driving pension participation, it also created something entirely new: a mass market of largely unengaged pension savers.
When the Pension Freedoms arrived in 2015, they transferred a significant amount of responsibility from providers to individuals. By choosing flexible retirement options, many consumers unknowingly took on the challenge of managing investments, withdrawal strategies, longevity risk and tax planning throughout their retirement.
The issue was never Pension Freedoms themselves, as they delivered greater flexibility and control over their pension savings. The issue was that they were introduced at pace and without a support framework capable of operating at scale.
Combined, Pension Freedoms and Automatic Enrolment created a new challenge for government and industry to contend with. At exactly the point we were bringing millions of largely disengaged consumers into pension saving, we were simultaneously creating a system that required them to make increasingly complex retirement decisions that would impact how they spent their later years. We have been playing catch-up ever since.
This is why initiatives such as Pension Awareness Day and Pension Awareness Week have become so important. They create a platform for the industry to engage consumers, improve understanding and encourage action at a time when saving and retirement decisions are becoming more complex than ever.
Whilst participation is largely solved for the employed, challenges remain. According to the Pensions Commission, only around 4% of self-employed workers are actively contributing to a pension, and more broadly, DWP data suggests around 45% of the working-age population are still contributing nothing to their pension every month. Automatic Enrolment has largely solved participation for employees, but significant gaps remain for other parts of the workforce.
How do we solve this? Pension Dashboards have the potential to be genuinely transformative. For many consumers, dashboards will provide the first holistic view of their retirement savings. They will help people reconnect with lost pension pots, bring together benefits accumulated across multiple schemes and provide a clearer picture of their overall retirement trajectory.
Perhaps their greatest contribution will be changing the way consumers think about retirement. By converting pension wealth into an Estimated Retirement Income, dashboards have the potential to answer the question, “What do I have?” while simultaneously prompting a more important one: “Will it be enough?”
For many consumers, the answer may come as an unwelcome shock. The challenge then becomes ensuring they have seamless access to guidance, targeted support and regulated advice that helps them decide what to do next. Dashboards should not be viewed as an endpoint. They are a gateway to better decision-making.
Greater personalisation, digital tools and simpler language will all have a role to play. Guided Retirement solutions have the potential to help millions simplify complex retirement decisions and improve outcomes. The workplace market is also likely to become significantly less fragmented over time, creating opportunities for greater integration between workplace and retail pensions. Rather than perpetuating a workplace versus retail debate, we should focus on how the strengths of both can be combined to improve customer outcomes.
We should also be realistic about the limitations of Pension Dashboards. For individuals who have never saved into a pension, including many within the self-employed population, separate interventions will still be required to encourage wider participation.
Similarly, even engaged consumers can find it difficult to keep up with the pace of regulatory change. Providing access to information alone is not enough, and consumers need help turning information into action. Targeted Support could play an important role in this area; however, it has limitations in terms of both regulatory coverage and the support it can provide for pension consolidation scenarios.
The industry’s success over the last decade should give us confidence that these current challenges can be overcome.
We need to go beyond simply encouraging people to find a pension or even understand a pension. We need to encourage them to ask the most important question of all: will I have enough for the retirement I want, and if not, what do I need to do?
Ultimately, the measure of success is not how many people have a pension. It is how many people are saving enough, making informed decisions and retiring with confidence, dignity and financial security. Our focus now must be on building the support, guidance and engagement framework that enables consumers to answer that question and act on it.
That is what we should be striving to achieve with Pensions Awareness.
This Pensions Awareness Week, TISA also encourages people to stop to take a moment to look at their own pensions. There are some really useful toolkits and resources which can be found here:
