When we embarked on developing the UK’s first Retirement Confident Index, key for us was investing in a project with the potential to drive meaningful change.
We’ve set out the key developments we believe are needed to solve the problem of retirement confidence, and the lack of it, in the UK.
Firstly, we need to ensure we have more adults who are saving into their pensions. Secondly, we need people to understand how much they're saving and what for, and thirdly, they need to be empowered to save for retirement in an environment of trust and stability.
There's no silver bullet solution here
To make the meaningful change that’s needed requires an enormous collective effort from stakeholders. We all have a role to play - that includes us and our fellow providers, our adviser partners, government and the regulators, and of course, the consumers themselves.
One of the biggest obstacles we face is engagement with an issue that many consider boring. Pensions are seen as something to think about tomorrow, when people have more time or more money to spare. This sense of procrastination is likely to be worse than ever, with more pressures on household budgets and people more concerned about making ends meet.
The Retirement Confidence Index currently stands at 6.9 with a negative outlook. The score could be worse, but it faces serious downward pressures. These are being driven by the shift from more generous defined benefit pension schemes to smaller defined contribution pots. Economic uncertainty, high inflation and interest rates are all impacting people’s appetite and ability to save for the long term.
The index has revealed some unexpected findings that we can build from
The power of planning is key in helping people to feel more certain about their futures. UK adults with a detailed plan report being much more confident that they will achieve their retirement goals (8.3). In stark contrast, those with no plan in place report the lowest confidence (4.6). Yet nearly half of people aged 50 and over do not have a detailed plan in place. The solution is clear: we need to encourage consumers to engage with planning more, whether informally or via professionals who offer this more holistic service.
The findings also suggest that advice does not appear to have a material impact on the confidence of those approaching or in retirement, though it is slightly higher for customers who have benefitted from financial advice - at 7.0 compared to 6.8.
We in the industry are aware of the power of financial advice to change the lives of consumers, but the fact that so few people access it highlights a fundamental barrier that needs to be addressed. The benefits of planning and advice must be promoted if they are to help shift the dial on advice take-up.
But to reach more people and force a more seismic shift, we need action from government. Auto enrolment is widely recognised as a tremendous success helping millions put money into their pension pots who might otherwise not have done so. Though contributions now need to increase.
We also urge government to put an end to the pension legislation merry-go-round. Given these are long-term arrangements, the legislative process needs to reflect that. One way of addressing this could be an Independent Pensions Commission to develop policy around pensions and saving. This would be a way of bringing about consistency and the environment of trust we need to pave the way for more rewarding retirements.
