UK pension inertia explained

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Pension inertia explained

Financial planning in association with Scottish Widows bannerWorkers are taking a passive approach to their pensions and missing out on matched contributions from employers for three principle reasons, according to new research

An overwhelming majority of UK companies are experiencing pension inertia among their workforces, according to a new report.

A study of over 100 organisations by LifeSight, Willis Towers Watson has found that 97 per cent of firms are seeing notable pension inactivity – characterised by employees opting to remain in default investment funds, or saving at their default contribution rates and missing out matched contributions from their employers.

The research uncovered three key reasons for employees failing to put more into their pensions. The biggest of these relates to saving priorities, with over half of the employees surveyed (56 per cent) citing saving for a house or holiday as the biggest barrier to increased pension activity.

A fifth, meanwhile, pointed to a perceived complexity of the pension offering and its potential rewards, and 17 per cent said that they simply couldn’t afford to invest more.

The findings also placed a spotlight on the role of employers in this climate of pension inertia – over half of the companies surveyed (57 per cent) admitted that their pension communications are not tailored for individual employees.

In addition, more than a third of organisations (37 per cent) said they had no current plans to play a bigger role in the long-term savings of their staff.

Pension inertia – the experts’ view

Richard Veal, of Towers Watson, said: “In 2017, there is no reason why the pensions industry should be lagging behind with outdated communication methods, such as paper statements and brochures

“By analysing behavioural patterns underpinning saving attitudes and strategies, using modern technology and making pensions more relatable, the industry can become better enablers of pension saving decisions.

“With their significant access to and influence over the UK’s workforce, employers can also play a crucial role in driving engagement and ultimately help guide their employees to financial security in retirement.

“Good communication with employees will be critical in overcoming the UK’s current pension paralysis.”

David Holton, Corporate Pensions Director at Scottish Widows explained:

“Whilst inertia undoubtedly contributes to the lack of engagement with pensions it is also a key factor in the success of auto enrolment.

“The challenge for the industry is to strike the right balance here – to get the best retirement outcomes you need to switch people on to the benefits of saving for the future, to encourage them to save more where possible and equip them with a level of knowledge so they can make informed decisions when managing their money.”

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