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Half of employees unaware of what their pension is invested in

Dive into the latest findings from a comprehensive research study shedding light on UK workers’ understanding of pension investments.

According to new research* over 2,000 working adults with a defined contribution workplace pension, nearly half (49%) said they were unaware of what their pension is invested in.

There seems to be a general lack of pension understanding with 29% unaware that their pension is even invested, and 38% saying they were unaware that their pension had a choice of investment funds to choose from, which increases to 44% for those age 55+.

Coupled with this, 30% said that they were unaware that if they didn’t choose what their pension is invested in, it would automatically be done for them by their pension provider (into the default investment fund).

Currently only one in five (21%) say that they have chosen pension investments based on their values and beliefs (such as environmental, social or religious beliefs). Although two in five (40%) said they would increase their contributions if they knew their pension was investing in funds that aligned with their values and beliefs. This increases to almost half (48%) for younger workers (18–34-year-olds).

 Jonathan Watts-Lay, Director, WEALTH at work, comments; “It is widely recognised that people need to be more engaged with their pension savings and investing more for their retirement. So, it’s worrying that our research shows that many people don’t realise that a pension is an investment, or even that they have a choice over how their money is invested in their pension. Particularly concerning is that this worsens for those approaching retirement (age 55+), as at this point people need to consider how they plan to generate a retirement income (i.e. take it as cash, buy an annuity, go into drawdown or a combination of options) and ensure their pension investments or ‘glide path’ is aligned with this.”

He adds; “In order for people to better prepare for their financial future, it’s vital that they engage with their pensions as early as possible. So, it’s really interesting to see that many said they would increase their pension contributions if they knew it was invested in funds that aligned with their values and beliefs, and this is despite the current cost of living challenges. This is especially appealing for younger workers, a cohort typically less engaged with their pensions.”

Watts-Lay explains; “In recent years there has been a significant expansion of Environmental, Social, Governance (ESG) considerations, with people wanting to align their pension investments with their values and beliefs. However, ESG is a broad category and it means different things to different people, with no one size fits all approach. There will be some people who care passionately about environmental issues and others will have religious beliefs to take into account when making decisions. Some might want to invest in companies that promote social cohesion, greater representation and diversity. It may be that others are just wanting to choose investments that are having a positive impact on the world. But simply knowing that pensions can be used to make a difference can be a powerful way to switch people on to better engage with their long-term savings.”

He adds, “Many leading workplaces empower their employees with financial education and guidance via financial coaches to help them build understanding and engagement around their pensions and the options at-retirement.

Our experience shows that interactive financial education workshops are far more engaging than passive information on a website or leaflet. Earlier on in an employee’s career financial education should cover how pension schemes work, employer and employee contribution levels, tax relief, what funds they can select from, as well as how they can change the funds their pension is invested in. Later on around mid-career, employees will also need to understand if their pensions and other retirement savings are on target, as well as how income may be generated in retirement and ensuring investments are being managed in line with this e.g. their investment glide path. Then once at-retirement, financial education or one-to-one guidance should help employees understand how to generate an income from their pensions and other savings, as well as how to seek further help including regulated financial advice.”

Watts-Lay comments; “After all, employees who better understand their pensions are likely to be more engaged and save more, make better decisions at-retirement and achieve more positive outcomes, which ultimately is what it’s all about.”

*Research for WEALTH at work was carried out online by Opinion Matters throughout 20/03/24 – 26/03/24 amongst a panel of 2,002 Workers, aged 18+ who have a defined contribution workplace pension.

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