Pensions may be more vital than ever, given that people are generally living longer, but many don’t understand what they’ve signed up for and what the benefits of their pensions are and what they actually mean, the results of a new survey show.
In a poll of 1,000 UK adults conducted by YouGov on behalf of financial services firm Drewberry, the majority of respondents, 41%, don’t understand what their workplace pensions mean, in terms of what they put in and what they will get when they retire.
An even higher number of those who took part didn’t have a proper grasp of vital tax relief benefits associated with their workplace pension, the 2022 Drewberry Workplace Pension Survey found – presenting challenges to not only pension providers but also employers, inadequately explaining what their staff are getting.
A total of 87% of poll participants said they were paying into a workplace pension, and most (56%) said the provision of a pension by a company was an important aspect when searching for a new job.
‘Pension poverty’ rising
Amid the cost-of-living crisis as energy and other household bills soar, and with more than 2 million pensioners now living in poverty, the survey also found that a large percentage of respondents (41%) don’t know how much is being taken out of their pay packet every month and going into their pension pot.
Companies also pay into employees’ workplace pensions, but the YouGov/Drewberry survey discovered that close to half of respondents were unaware how much money their employer contributed. Confusing the pensions picture even further, over a quarter of participants (29%) didn’t think their companies paid in enough while many (34%) believed they weren’t contributing enough themselves.
And a clear majority (58%) wanted to know if they were actually saving enough money for their retirement. Nearly one-third (27%), meanwhile, think they’re being kept in the dark by their employer about the amount they contribute to their pensions, because there’s little or no communication about it. To help them better comprehend, one in three workers said they would like a discussion with a financial advisor, in meetings paid for by their company.
Psychological link between Avoidance and Shame
Planning for the future is something that we hear from an early age – so why is it that many of us don’t really understand what our financial future will look like or what we will need the money for?
A Forbes article on ‘The Psychology of Money’ shows that avoidance and shame are closely linked. It highlights how we avoid making tough decisions that impact our immediate finances (less disposable income = being poor), which leads to shame because we haven’t planned for the future. It goes on to point out that we’re hard-wired to deploy various kinds of avoidance manoeuvres when encountering something that is anxiety-provoking or uncomfortable. The tricky thing is that in the short-term avoidance works to reduce anxiety – and because it works, we’re inclined to do it again. This however is short-lived and anxiety levels start to rise as we realise we still don’t have a long term plan.
Transformational financial mentor, Elizabeth Buko, adds: ‘There are many reasons why people choose not to put enough aside towards their pension in the UK, even with the awareness of pension poverty. These may include some of the below points.’
Having No Clear Vision
Everyone knows that they should plan, but many don’t. It can be hard for people to imagine what their future will be like.
Many look at their current situation and find it hard to visualise how putting a little extra into a pension can help them, so this leaves them stuck not saving enough for their pension.
The idea that a government pension will provide enough seems to give a false sense of comfort.
A consuming culture, habits and mindset backed by misinformation and fear
The credit culture in the UK doesn’t encourage saving.
Once all bills and debts are paid, few find the spare cash needed to save towards a robust pension. A recent article showed that 57% of GenX are struggling to keep up with their pensions because of rising financial liabilities and responsibilities.
Lack of transparency
Saving in a pension that you can’t touch until retirement takes a lot of faith, especially because many don’t know how much they would need in retirement, how much they need to contribute and for how long. Also how much they will actually have after fees and taxes are paid.
Call for pensions clarity
Drewberry director Tom Conner said people had a right to know all the details of their workplace pensions, so they fully understood how they work and what they will eventually get, to support their life when their careers are over.
‘Pension providers and also employers need to do more to outline exactly what the benefits are for people signing up for pensions, so they’re clear about their monthly payments and what they will get at the end,’ he said.
‘It’s up to pension firms and people’s bosses to explain where people stand with their pensions, so there are no doubts about this financial product.’
