Chancellor Philip Hammond avoided throwing any deliberate hand grenades at pensions policy in the Autumn Statement 2016. There was no tinkering with the triple lock or pensions tax relief despite speculation from some commentators that there might be. Although the triple lock looks to be under threat after 2020, Hammond passed the buck to a future chancellor. Instead, Hammond majored on salary sacrifice and launching a new corporate savings bond.
Some might say that ‘spreadsheet Phil’ was right to resist tinkering with a pension system that has witnessed seismic shifts in recent years. First came auto-enrolment, bringing millions of virgin pension savers into the fold. Then the pension freedoms followed, breathing some life into a moribund retirement income market.
Both auto-enrolment and the pension freedoms have brought much needed reform. The UK now has millions more working adults saving into pensions and a more flexible, albeit complex, retirement income market. But we have not quite cracked engagement.
Platforum surveyed a nationally representative sample of UK working adults aged between 22 and 64 for our Consumer insights – facing an uncertain retirement research published in September 2016. We wanted to better understand attitudes and behaviours towards pension saving and sources of income in retirement.
On the one hand, there is a clear understanding among UK working adults that the workplace pension will form an important source of retirement income. Nearly one third (30%) expect workplace pensions to provide the greatest share of their retirement income. This compares with 17% who expect that the state pension will make up the greatest share of income in retirement. A far lower percentage (4%) expect that property will make up the greatest share of income.
On the other hand, when we probed our survey respondents more closely about workplace pensions we found significant gaps in their knowledge. Very few working adults know the charges associated with their pensions or which funds their pensions are invested in. And only a quarter (25%) of working adults know the value of the contribution their employer makes to their pension.
When we asked our survey sample what action they would take after receiving a pension statement, we found that 59% read the statement and took no further action. Perhaps the fact that they read the statement at all can be counted as a minor victory.
Savers are still facing an uncertain retirement. In part, this is because UK adults are not taking action about pension contribution levels, fund choices or how to take retirement income at the appropriate time. In some cases, workers are not making any decisions at all, either unwilling or simply unequipped to be proactive.
Some UK pension savers are undoubtedly apathetic. But many are also uncertain about whom to go to for advice or guidance. When we asked working-age British adults whom they would approach for advice on retirement planning, the highest percentage, 44%, told us that they would approach friends and family, 30% would go to a financial adviser, and only 14% would seek advice from the pension provider or from their employer.
The relatively high percentage of working adults who would choose to see a financial adviser to help plan their retirement is encouraging. It reflects a recognition that professional advice is important when faced with a pivotal financial decision such as retirement.
Initial indications from Platforum’s annual survey of employers and advisers on workplace savings, Workplace savings guide, due to be published in January 2017, suggests that just over half of employee benefits consultants and financial advisers advising employers are also offering advice to individual scheme members through the workplace. Of these advisers, two-thirds tell us that the proportion of revenue from individual advice through the workplace is increasing. This result indicates that advisers do see an opportunity to deliver individual advice to employees. When we conducted this research last year, advisers still had a wait-and-see attitude towards offering individual advice in the workplace. This initial result suggests that one year later, they are more optimistic about the opportunity.
There is clearly still a challenge in broadening access to advice for employees. Financial advisers would typically expect to receive around £1,000 for offering initial financial advice. The new pensions advice allowance, that will come into force in April next year, allows savers under 55 to take an extra £500 tax free from defined contribution (DC) pensions to cover the cost of retirement advice. This is an important step but £500 falls short of many advisers’ initial fees. However, online or phone-based advice is bringing individual advice to employees at a far lower price point of as little as £100. At this price point, employers may be more willing to cover the cost of advice as an additional employee benefit.
Our research with employers indicates that they feel a burden of responsibility to help their employees prepare for and save for retirement. Platforum’s survey of working adults, however, puts very little responsibility on the shoulders of employers. The burden of engagement and education need not fall to employers. Advisers appear ready to embrace this opportunity.
Miranda Seath is senior researcher at Platforum