3 May 2018
We surveyed DC savers on one of Europe’s busiest high streets to find out what’s stopping them doing more with their pensions and asked, but more importantly, listened, to what they had to say – some of which surprised me.
As an industry, we know that pensions are often seen as “scary”, “too far off” and “too complicated”. But what if savers were gifted a pot of money, say £25,000, to do whatever they wished with, would they use it wisely?
Amongst the expected responses of “Give a bit to the kids”, “Get on the property ladder” and “I’d go on a massive holiday” (gosh, imagine that holiday!), I was pleasantly surprised to hear so many of our interviewees say “I’d invest it in something sensible” or ”I’d put it in a stocks and shares ISA”.
A lot of these people wanted to invest their money – not all wanted to blow it. They wanted to do something sensible with it for the long-term. But none of them made the connection that this is exactly what a pension scheme does.
So, I think there are a few things that we could do better at to help DC savers make the connection, starting with:
Explain that their money is invested
Use language people understand. Let’s stop referring to ‘default lifestyles’ and ‘UK equities’. Explain their pension is invested in stocks and shares but the difference is all the hard work and monitoring is done for them. . If you’ve thought about Responsible Investment you might even be able to tell them all the good things their money is doing, such as helping to curb global warming.
And explain that their pension pot can grow – much more than if they were saving by themselves
A way of grabbing attention is referencing pounds and pence…Let’s take the average UK worker earning £27,000 a year. Using the current auto-enrolment contribution rates as a guide, if they had invested 3% of their salary (£67.50) each month in a stocks and shares ISA over the last 5 years they would have around £7,400 in their pot today.
If they’d invested the same 3% a month in a pension it would only cost them £54 as the tax man would pay £13.50 in tax relief. And their employer would pay at least a further 2% (£45) which means there would be £112.50 invested each month.
If that money was invested in the same stocks and shares as the ISA in the same time period, they would have over £12,500 instead. That’s nearly double the amount than if they’d done it themselves in an ISA. Do people understand that there is this much free money to be had?
Let’s take responsibility to make sure people understand that their pensions are investments, that they can grow and that there are significant advantages to saving for the future in a pension scheme
We will be sharing more insights from our conversations with savers over the coming months. Watch this space…