Low Income And Lack Of Understanding Blamed By Those Not Paying Into Pensions

• 55% report low income reason behind not contributing to a pension, up from 38% in 2010-12
• Four in ten say they don’t understand enough about pensions to make decisions
• Equiniti backs the idea of national retirement income targets to battle against inaction and increase understanding of the benefits of pension saving

Analysis from Equiniti, one of the UK’s largest pension administrators, finds that people are increasingly blaming low income on why they do not contribute to a pension, according to recent figures from the ONS¹.

When asked for the reasons why they were not contributing to a pension, 55% of people in the 2016-17 cohort said that either low income, lack of work or still being in education were to blame. This marked a rise of 17 percentage points from the 38% of people who cited this as a reason in 2010-2012.

Further answers revealed how crucial disposable income is to pension saving, with a third saying they couldn’t afford to contribute in general and 18% had too many other expenses.

Chris Connelly, Propositions and Solutions Director at Equiniti, believes the responses demonstrate a need for better communication around the benefits and importance of pension saving, commenting:

“This survey clearly emphasises that pension saving is one of the first outgoings to be cut when money is tight – it is not prioritised. However, with the State Pension unlikely to sustain a good standard of living in retirement, it is absolutely crucial that people do put away money for later life whenever they possibly can – particularly given the additional payments that employers will make in workplace schemes.

“Auto-enrolment has been a fantastic stimulus in getting people to save and keeping them contributing on a monthly basis. The low opt-out rates perhaps even indicate that while many people think they cannot afford to put away a portion of their salary each month, when this decision is processed automatically the reality is that they are still able to make ends meet.”

As well as affordability, another key area the survey examined was knowledge of pensions with 13% saying they did not know enough about them to contribute financially. 39% also said that they did not understand enough about pensions to make decisions about saving for retirement.

This lack of confidence could lead to damaging inaction from people who feel too spooked about the pensions industry to save for their retirement, according to Chris Connelly, who supports the PLSA’s proposed ‘national retirement income targets²’ to get people valuing the worth of their pension.

“At present, people don’t understand a pension: don’t value the benefit and it is not seen as a priority which is naturally going to lead to the conclusion that the monthly contributions could be better utilised. The PLSA’s plans would be a great idea as it would get people to focus explicitly on how much they need to put away before retirement, to plan ahead financially and increase support through the accumulation period.

“Until people value the benefits of building up retirement savings (for example, the ability to stop working earlier or travel more in retirement) then it will remain bottom of the list when the monthly pay packet comes in. Making the process of saving (in whatever vehicle) more accessible and putting a tangible objective in place that will result in tangible rewards and should encourage better behaviours and continue to build on the good work of auto-enrolment.”

ENDS

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