In a year when 38% of respondents were directly impacted by COVID-19-related employment changes, the survey’s key findings showed a worsening in the retirement savings gap for defined contribution (DC) scheme members. Currently, almost one in four people (17%) think they will never be able to retire - marking a huge increase from 2018, when the figure was one in seven.
Key findings include:
• 87% of employees are expecting a shortfall in retirement income based on current provision
• 36% of employees expect to continue in work past the age of 68, with just 37% believing they are currently saving enough for their long-term needs
• Just 15% of respondents believe their employer offers a very good level of financial wellbeing support, while around one in three (30%) say their employer offers no support in this area. A further one in six (16%) do not know what support (if any) is available
• 71% of respondents had not set a goal for how much they would need to save before they can fully retire
• Only 7% said they checked during 2020 to see how their pension investments had been affected by market movements.
Ben Roe, senior partner and head of DC at Aon, said: “This year’s Aon DC member research highlights that we are experiencing a fundamental shift in the way that people move from the world of work into retirement. This is no longer a one-off event at a specific age, but increasingly a phased move taking place at ever older ages – and presenting new challenges.
“For many defined contribution pension savers, accessing these savings is likely to be the single biggest financial risk they face.
One bad decision could wipe out many years of careful saving and even a slightly sub-optimal choice could cost thousands over the duration of their retirement.”
Ben Roe continued: “All this highlights that employers need to do more to support employees by helping them to save for the future during their active years, enabling them to build adequate pension pots, and helping them to decide how to manage savings when they reach retirement age. The alternative will be an ever-increasing number of employees who are unable to retire fully from work.
“Last year’s Aon DC Scheme Survey, showed that both companies and schemes were looking to support members - but clearly the intention is not yet materialising. Employers need to recognise how best to engage with their employees and to structure their pensions and wider financial support in a manner that helps them make the most of their pension saving.”
Investment decisions
The survey found out that only 7% of employees checked to see how their pension investments had been affected by market movements in 2020, while only 8% said that they plan to do so over the next 12 months - and half of them are the same people.
Jo Sharples, partner and head of DC Investment proposition at Aon said: “It may come as a surprise that despite unprecedented market volatility, people are not checking how their pension savings are faring. It only serves to emphasise how vital it is for a DC pension scheme’s default to take care of investments on behalf of members.
“Similarly, when it comes to ESG considerations - and despite the increasing interest in the wider world - only 4% of pension members have checked to see if they are comfortable with how their pension is invested from an environmental and ethical standpoint. Interestingly, older individuals are just as likely to have checked as younger ones, so this not a ‘millennials only’ issue.”
Jo Sharples continued: “However, previous research suggests that if given the choice between two similar funds, savers would choose to invest in the one with better ESG credentials. So again, the onus is on those running schemes to do this on behalf of their members. Increasingly, it will not be enough to take what seems like an easy approach of offering some form of ESG self-select option and then expecting members to do it for themselves.”
Communications and engagement
The survey found that 71% of employees have not set a goal for how much money they will need to save before they fully retire, with this figure even higher for women (76%) and those in their early career (79% for under 35s). It also highlighted a serious affordability issue; 87% of respondents declared that they expect there to be a shortfall in their retirement income compared with their current earnings.
Steven Leigh, principal consultant at Aon, said: “More than ever, DC pensions need focused and clear communications. Most employees base their savings levels on what their employers put in place and they rely on them for help and guidance when taking actions regarding their pensions. However, only 15% believe their employer offers a very good level of financial wellbeing support.
“The most straightforward way for employees to improve their pension outcomes is to save more, and to start as early as possible. But it’s clear that people are anchored to their employer default or maximum matching contribution levels when choosing how much to save. Members expect guidance in simple terms, rather than complex modelling. Quite simply, they want to know how much to save to be able to retire on an adequate income. It’s therefore crucial for employers to up their game, to offer better support in a more digestible way and to help employees plan for retirement.”
‘Keeping on track in challenging times - DC pension and financial wellbeing employee research 2021’
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