‘Mind the gap’ is a phrase most Londoners well-versed in the delights of travelling on the London Underground will be familiar with. The audible and visual message warns travellers to exercise caution when crossing the potentially dangerous divide between the platform and train door.
But those working in both London and the wider UK should also be warned of crossing the daunting divide between work and retirement — a divide that could potentially result in severe hardship later on in the journey through life.
And where commuters are urged to mind the gap as they enter the next stage of their journey, savers should be urged to mind the engagement gap as they plan for the next stage of their lives — retirement. Indeed, the gaping gap in consumer engagement and knowledge when it comes to pensions and retirement poses a real danger that could condemn large numbers of the current workforce to potential pensioner poverty later on in life.
The worrying extent of this engagement gap was laid bare in a recent CoreData Research report. The study, which surveyed over 500 non-retired retail investors, found more than half (55%) of respondents are in the dark about the value of their pension pot and over a quarter (28%) have never checked their pension savings. More disturbing still, one in seven (14%) are not even aware who their pension provider is.
The study also reveals that this lack of engagement is particularly acute among the young — nearly three-quarters (73%) of those under the age of 30 don’t know the approximate value of their pension pot and a majority (53%) of these young investors have never checked their pension savings.
Furthermore, nearly one in five (17%) of all respondents don’t know how much they are saving toward their pension and those that do are not saving enough. And with 67% of respondents saying they will rely on the state pension to generate an income stream in retirement, there is a desperate need for better education about the importance of workplace savings and contribution levels.
People will seriously struggle to live on the state pension alone, which will likely be less generous when the current workforce retires. While the Government looks set to continue with the triple-lock guarantee for now, this should very much be viewed through the prism of the general election in June. The triple lock is unsustainable in the long-term.
Such low levels of engagement, knowledge and preparation highlighted in our study underscore the pressing need for consumers to access financial advice. But our report shows more than half of savers (52%) have never used a financial adviser. And with 51% of consumers telling us they are not at all likely to use the £1,500 pension advice allowance, Government efforts to improve access to retirement advice are not making much headway.
This is an area the Government must now urgently address because provision of financial advice could help close, or at least reduce, the engagement gap.
When it comes to Government policy, it could be argued that pension freedoms will exacerbate the problems faced by those in retirement. If people choose to take their whole pension pot as a lump sum and then proceed to spend it all then they will be forced to look for alternative sources of retirement income.
The Government has, however, undoubtedly made some inroads when it comes to workplace pensions. Auto-enrolment and Nest, the Government-backed master trust, have largely been a success, although contribution rates need to improve. The Pensions Regulator (TPR) recently announced that half a million UK employers have now met their workplace pension duties.
But auto-enrolment relies upon inertia and the Government must look to actively raise people’s awareness and knowledge rather than promoting schemes that depend upon their lack of awareness and apathy.
So what can the Government do? To begin with, it needs to recognize the scale of the problem and accept that pensioner poverty poses a real danger both to retirees and society at large. The Government has done much to deter us from pursuing unhealthy lifestyles whether that be smoking, drinking excessive amounts of alcohol or eating badly. So perhaps it needs to do more to ward us away from financial ill health later on in life. The prevention of pensioner poverty needs to rise up the political agenda.
What form this takes is problematic. Does the Government need to launch advertising scare campaigns warning people of the dangers of not saving enough for retirement? Do people need to be compelled or “auto-enrolled” into financial advice? Or should the prevention strategy start earlier, with compulsory finance lessons in the classroom and thereafter in the workplace?
The problem with these initiatives is that we live in a liberal democracy and people are ever-watchful of the encroachment of the nanny state. Government intervention needs to tread a fine line between respecting our civil liberties and protecting our wellbeing. So the Government needs to give consumers a helping hand and point them, or nudge them, in the right direction — whether toward paid-for financial advice, Government-backed free advice services or other sources of information and education.
The simple fact is that vast swathes of working people find pensions boring, dull and complicated. In our busy, hectic lives taking time out to learn about pensions and plan for retirement does not appeal. And the instant gratification instinct inherent in the human psyche inevitably makes some people reluctant to look beyond the now and plan for things years down the line.
But people need to start planning now because the current generation of unengaged workers is facing the very real prospect of not having enough to enjoy a comfortable retirement as demographic and economic forces look set to drag down retirement incomes and compel people to work longer. Intergenerational inequality is deepening — in many ways, current retirees have never had it so good and future retirees will have never had it so bad.
The UK is in the grip of a savings crisis and it is of paramount importance that consumers start arming themselves with the information necessary to make informed decisions about their future and their retirement. Ultimately, knowledge and engagement will prove decisive weapons in the fight against pensioner poverty.