Connected Research

Union policy research in the 21st century

Why don’t people save in pensions?

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One-half of all people are not saving in a pension scheme, according to a survey of 1,358 adults conducted for the BBC by GfK NOP. The proportion slides to just 36% of those aged under 30, but includes 45% of 41-60 year olds some of whom, according to the report, are beginning to realise the need to work beyond 65 as a result of the unreliability of their pensions savings.

Amongst the under 30s, commonly cited reasons were affordability, not knowing how to start a pension or retirement being too far away to plan for. Nevertheless, half thought that they would still have a comfortable retirement – perhaps a reference to putting savings into housing, or perhaps a belief that there was still time to save, or that the state would anyway provide.

The reasons why people don’t save in pensions are pretty well-rehearsed but usefully summed up by Citywire’s Morning Line as:

– people are too busy spending, not least when the economic boom years have been led by consumer expenditure

– people don’t trust the financial services industry as a result of some highly publicised situations which do much to discredit it

– a perception that the pensions system is unfair and provides poor value

– there isn’t enough cash to save given other priorities

– life is too short.

Well, useful apart from the last, perhaps; the other reasons are valid even if some are a little over-blown for the purposes of the Citywire blog.

Pensions saving in an established workplace situation, which is where most Connect members come from, is a little easier than elsewhere: you have a ready source of opinion and advice, which is especially important given the complexity of, and confusion over, pensions schemes; the schemes themselves tend to be adequate; money comes straight out of salary so its absence from the wage packet doesn’t have so much of an impact; and everyone else is doing it. Of course, uncertainties remain even then.

Outside this sort of situation, where there is less of a tradition of pensions saving and where peer pressure is less because fewer people are saving for their retirement, things are much more difficult. Stories of people deciding that they’ll get by in retirement without saving, or investing in property instead, quickly get around and quickly become persuasive.

Reasons to invest in pension schemes remain cogent, among them: your own savings tend to trigger a contribution from the employer (occasionally healthy ones); schemes offer valuable death-in-service benefits and, in a good defined benefit scheme, ill-health retirement protection; and your contributions are tax deductible, so your pensions savings cost you less than the value you gain from it. Arguments that we need to move towards a better mix of work and retirement as a means of covering greater lengths of time in retirement are sound – except when they are a means of excusing a lack of investment in pensions at the appropriate time. Fundamentally, people who save throughout their working life will be better off and more able to enjoy their (increasingly long) years of retirement.

The difficulty remains that, with fewer and fewer people saving (or saving adequately) for their retirement, the greater the burden that is going to fall on the state – that is, on tomorrow’s workers. This has been the trend for some time but the policy tool for correcting it – the system of personal accounts – is still three years away and, even then, it may not do more than tinker around the margins. In terms of public policy, we may need to do more.


Written by Calvin

27/05/2009 at 3:52 pm

Posted in Pensions

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