Younger people are in favour of government plans for a pension pot for life, a new survey reveals.
A survey of UK workers by the Social Market Foundation – a cross-party think tank – supported by pension and savings fintech Cushon, has revealed high levels of support for a pension ‘pot for life’ that the employee gets to decide on. While 25-34 year olds are the most supportive (78%), support is also high among 35-44 year olds (73%) and 45-54 year olds (69%).
The SMF’s survey findings come at a time when the government is consulting on proposals for a ‘lifetime provider model’, aiming to address the proliferation of small pots that comes from automatic enrolment – pension pots worth less than £1,000 that can get lost over the course of a person’s career as they switch jobs. However, the pensions industry is resisting the changes, citing barriers such as consequences for market competition, levels of engagement, higher fees.
The SMF noted that these issues exist in the current landscape, and could be addressed under ‘pot for life’, which has the added benefit of giving people desired control over their pensions contributions’ destination.
The SMF survey explored public attitudes to member choice, as it would mean a major change from the status quo – where engaged consumers are rare, and most have a passive relationship with their pension. SMF found that, overall, 72% of workers with a Defined Contribution (DC) pension are in favour of member choice.
Those with higher levels of educational attainment, and existing pensions engagement, are slightly more likely to be in favour, but the measure has majority support across all demographics. Member choice remained popular, even when respondents were presented with potential trade-offs of changing from the status quo. For instance, only a quarter of respondents are worried about losing employer information and guidance on pensions.
That said, wanting the option of member choice should not be interpreted as wanting to use it, the SMF warns. Only 28% of survey respondents who supported member choice said they would actually use it and choose a different pension provider than their employer’s. Additionally, 67% like their employer handling their pension for them, and 48% do not think they need to actively manage their pension.
These views likely reflect that higher employee engagement in order to secure better retirement outcomes is not yet resonating with the public, who remain largely passive towards their pension.
Consumer inertia has always been a part of pensions, and while automatic enrolment was able to utilise this to vastly increase the number of people who save for their retirement in the first place, the maximum success of member choice is dependent on also equipping consumers to engage with their pensions.
If policymakers want to maximise the opportunity with pot for life, they must be willing to take further action to support pension consumers to move from being passive and disengaged to active and engaged, the SMF said. Digging into the SMF’s survey findings reveal that expecting engagement and take-up to automatically follow from introduction of the member choice outcome would be a mistake.
Niamh O Regan, Researcher at Social Market Foundation, said: “Past success with pensions policy – particularly automatic enrolment – was able to effectively utilise consumer inertia.
“However, as working habits have changed and people move jobs much more frequently, we now have an issue where an individual’s pension savings are spread over a collection of small pots, and the level of retirement savings is inadequate.
“Member choice can play a role in improving this picture, through stopping the creation of a new pension pot with each job, and ensuring pension savings can accumulate and appreciate in one place, likely leading to better retirement savings. It will also give consumers greater control over what could be their largest financial asset.
“With that said, while moving to member choice rightly reflects changed consumer preferences and working styles, it would be a mistake to assume that consumers will adopt member choice right off the bat. Having relied on consumer inertia for so long – it will take a lot more reassurance and support from government and industry for consumers to make such a leap.”
Source: https://www.hrgrapevine.com/content/article/2024-04-30-8-in-10-young-workers-want-a-single-pension-pot-for-life?utm_source=search-list&utm_medium=search&utm_campaign=pension