• 66% of DC savers said if their employer offered them a scheme whereby they set a target retirement income and their employer managed their pension to deliver that, they’d be likely to sign up;
• Only a quarter (24%) of DC savers said that they would be likely to opt out of such a scheme with over half (52%) saying that opting out would be unlikely;
• The current model of DC requires people to educate themselves to manage their pension effectively but 53% of savers do not even know what fund their pension is invested in;
• 73% of savers would prefer estimates to be simply on their expected retirement income rather than the size of their pension pot.
Commenting on the research findings, Lee Hollingworth, Head of DC consulting at Hymans Robertson said:
“The working assumption for current DC provision is that through providing education - such as the benefits of saving for retirement and the available investment options - members will be enabled to manage their own pension plan well.
“But examples of genuinely effective education initiatives are few and far between and the fact that 53% of savers don’t know what their pension scheme is invested in is evidence that pe ople are not sufficiently engaged to manage their DC pensions adequately. Further evidence of a lack of engagement or knowledge is the fact that 83% of scheme members select the default investment option* and that over a third don’t shop around for the best deal when purchasing an annuity at retirement**.
Commenting on the lack of engagement, Lee Hollingworth added:
“Many assume the reason why people aren’t more engaged is because financial education is failing and DC pension schemes typically do give the wrong kind of information when communicating to members.
“They focus on plan ‘mechanics’ and assume too much financial knowledge amongst savers. Information provided on pensions tends to be complex and typically requires savers to be financially literate and fully engaged with their plan.
“For example, many schemes expect members to be able to interpret estimates about the level of saving and the size of their pension pot. In our view, providers are not giving savers the information they need to determine whether they are on track to a financially secure retirement. A pension pot may look large on paper but this does not always translate into an adequate annual income.
“Our research found that almost three quarters (73%) of members would find it more useful if their scheme simply focussed on estimating the income they could expect to live off in retirement, as opposed to the size of their pension pot, as is traditionally the case.”
“But trying to educate people is not the only way to fix the problem. The reality is that the majority of people need, or would actually like, someone to do it for them.
“Instead of relying on people taking proactive decisions about their pension, we believe schemes need to do more to ensure savers reach their goals.
Lee Hollingworth concluded:
“Individuals care about what income they will get in retirement. They don’t care about how they will get there. The mechanics of a DC pension scheme will be of little interest to the majority. If anything it can be a turn-off. They just want to know that they will have enough to live off when they retire and if not, what action they should take.”
Research undertaken by Opinium between 19th – 25th March 2013. Sample of +500 UK adults currently paying into a Defined Contribution pension
*NAPF Survey 2010
**ABI 2010
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