Turning the tide on the UK’s pension engagement problem

Over a year since the onset of Covid-19, it seems that the UK is starting to return to some form of normality. Indeed, the easing of national lockdown measures, teamed with the successful vaccine has certainly driven a greater sense of optimism for the future. That said, it may take some time before the UK economy fully recovers.

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Andrew Megson | My Pension Expert
28th May 2021
andrew megson my pension expert
"If ever there was a time for individuals to start thinking about the future and review their retirement finances, then the past year would have been opportune."

Unfortunately, many Britons have faced furlough or redundancy as a result of ‘stay at home measures’ over the previous twelve months. As such, the UK’s unemployment rate sat at a staggering 5.1% in the final three months of 2020 – a marked increase on 2019 – and now, things are only just starting to look up.

Consequently, people will have seen their household finances stretched to the limit. If ever there was a time for individuals to start thinking about the future and review their retirement finances, then the past year would have been opportune. But unfortunately, this has not been the case.

A worrying lack of engagement

In truth, many individuals have failed to engage with their pension strategy over the past year, despite the pressures of the pandemic. According to a recent study commissioned by My Pension Expert, the overwhelming majority (78%) of UK adults over 40 have failed to review their retirement finances at all, with just 14% of over-40s having sought independent financial advice throughout this period.

But perhaps the most concerning finding uncovered by the research was that almost half of the pre-retirees surveyed have failed to check in on their retirement finances at all over the past twelve months. This lack of engagement suggests that people may not realise that they are falling behind on their retirement savings goals. Worse still, once they discover that their pension pot is smaller than expected, they may be driven to make ill-advised financial decisions in an attempt to make up for lost time.

For some, this may mean switching to a higher-risk investment strategy close to their retirement date, in an effort to boost the value of their pension pot. As these investments are particularly sensitive to market fluctuations – something investors will be all too wary of at the moment – this means that savers run the risk of depleting their pension pot, should an investment perform poorly. Put simply, individuals could see themselves worse-off than before.

Tackling the UK’s pension problem

Concerning though these findings are, they represent a call to action. It is clear that the financial services industry must do more to encourage people to save for a financially secure retirement – from IFAs themselves, to life companies and the Financial Conduct Authority (FCA) more broadly. This begins with fostering greater financial literacy amongst retirement planners, and engaging people from all walks of life to start saving for retirement at earlier age and seeking financial advice.

Presently, Britons are facing a particularly hostile savings environment, thanks to historically low interest rates and rising inflation. As such, individuals will likely require the help of a professional financial adviser to guide them through the process of developing a sustainable retirement strategy. With this in mind, whilst the FCA already does a great deal of good work, more must be done to improve savers’ awareness of the benefits of seeking advice, as well as their access to it. A positive stop in this regard could include more promotion of the FCA’s register, thereby ensuring adults know where to look for regulated financial advice.

Likewise, financial advisory firms should always ensure that advice is delivered to clients in a clear and jargon-free manner. After all, the current climate is complicated enough, and savers might be more inclined to seek advice when it is delivered with simplicity and clarity.

Looking ahead to the future, the Government’s pension dashboard should be a step in the right direction, as this will give savers the ability to easily access all of their pension pots from one destination. And particularly for those who have many pension pots from different employers scattered around, this should make the retirement planning process much simpler. That said, the initiative has been subject to delays, and is now set for release in 2023.

Ultimately, even with best intentions, it is unlikely that the financial services industry will be able to turn the tide on the pension engagement problem overnight. It will take time and careful planning to ensure that individuals are checking in on the health of their pension more regularly, and seeking advice should they require it. Especially where financial advice is concerned, this should and can be accessible to all – but the industry must make this known. Through this collaborative effort, we should gradually see more individuals actively planning for their retirement.

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