It’s time for a different approach to pensions education

At the end of last month, the Government announced new plans to “nudge” people towards taking pensions guidance. These proposals, from the Department for Work and Pensions, will require workplace pension schemes to direct their members to take Pension Wise guidance when they want access to their pensions.

On the face of it, ‘nudge to guidance’ seems like a great idea, building on the huge impact of auto-enrolment on pension contributions over the past decade (plus it’s always good to see a mention of nudge theory). But when you dig a bit deeper, and to quote MP Stephen Timms, it’s “nowhere near enough”.

If you haven’t come across Pension Wise before, it’s a guidance service available to people over the age of 50 who want to make sense of their retirement options. Members can book a 45 to 60 minute appointment for specialist pension guidance, to find out about:

·      the options for taking your pension money

·      how each option is taxed

·      next steps to take

·      questions to ask your provider

To say this is “nowhere near enough” might be a tad drastic. It’s certainly a useful service for those in the correct age bracket, with the right type of pension, and who are happy to chat all things pensions for up to an hour...

Aside from the fact that take-up will probably be quite poor (only 11% of those ‘nudged to guidance’ in a trial attended an appointment), the proposals do not recognise the broader issue – that people aren’t saving enough for retirement in the first place.

Here are some stats from a recent Scottish Widows Retirement Report:

·      34% of the self-employed are not saving anything for retirement

·      29% of construction workers “never expect to be able to retire”

·      49% of 22-29 year-olds are “not doing enough to prepare for later life”

·      54% of UK adults worry about running out of money in their retirement.

There’s a large proportion of the UK not being supported. And this is only being compounded by Covid-19. 3.7m people have reduced or stopped saving into their pension entirely this year, the majority of whom are from lower income households.

“Nowhere near enough” is sounding more reasonable when placed in this broader context – but is there a better solution?

I think the answer to this problem, as with a lot of problems, boils down to education. Education not just for those close to retiring, but across all ages, ensuring that people can put a plan in place so that they’re financially secure when they finish working.

Pension schemes are beginning to offer more to their members to support them as they edge closer to retirement. For example Standard Life provide a number of tools to members, including a financial health check, retirement check list, pension calculator, as well as a free consultation service. And from chats with numerous other pension schemes over the past couple of months, I know that financial education is becoming more of a priority across the board.

But the challenge is making these initiatives both effective and engaging.

In our experience at nudge, financial education needs to be personalised, proactive and actionable, and we’ve got a number of case studies showing how this can have a direct impact on pension contributions. For example, through our work with Siemens we helped drive a 30% increase in contributions from a third of its employees.

Given the impact this pandemic is having on the retirement prospects of millions of people in the UK, now is the time for pensions providers, employers, and the Department for Work & Pensions alike to provide the best possible financial education.

If you represent a pension provider, adviser or any other form of retirement support, I’d love to chat through how nudge can help - [email protected]