Read the report: Gearing up for retirement (PDF)
New research published today by Invesco, Invesco Consulting, maslansky + partners and Nest Insight identifies how simple changes to the use of language could help people in their 50s and early 60s to start taking small but important steps to prepare for retirement and avoid making potentially damaging knee-jerk decisions around what to do with their savings.
Commenting on the importance of this research, Matthew Blakstad, Director of Analysis at Nest Insight, said: “Many people in their later working life are shying away from preparing for retirement, and this isn’t surprising. Lots of savers will have built up their pension pots not by taking any action, but by following the default settings of auto enrolment pension schemes. However, when approaching retirement, people are faced with the need to pick their own retirement products from a complex and evolving marketplace. Very few feel equipped to make such an important decision.”
The study identified a range of barriers and complexities that can get in the way of preparing for retirement, including:
- Affordability of putting more into their pension pot and/or retiring
- Being overwhelmed by the options and things to consider
- Not knowing what steps to take towards planning for retirement
- Feeling it’s too late to make a difference to their retirement outcome.
Whilst savers’ self-reported levels of engagement, knowledge and motivation to act were found to increase as they approach retirement age, overall levels of engagement remained low. The challenge is to harness this ‘potential energy’ and translate it into action.
- Only 8 in 100 people in their 50s and early 60s have had a call with a free pensions advice service or spoken to a financial advisor.
- Fewer than 1 in 5 have used an online calculator to work out what income they can get in retirement.
Jo Phillips, Research and Innovation Director at Nest Insight, adds: “There’s a concern that many people are making snap decisions, taking all the money out of their pension and moving it to their bank account – somewhere they’re familiar with and where they feel in control of their savings. But, unless the individual has some immediate need for this money, they will probably be worse off because those savings will attract little or no growth or inflation protection, and they may face additional tax penalties. Our research looks for ways to help people understand all their options in the run up to retirement and to seek out the guidance and information they need to make the right decisions for them about how to use their pension savings.”
Through a combination of research methods, applying innovative methodologies including the use of Emotional Response dial technology, the study identified language that can make a tangible difference to people’s readiness and ability to seek out guidance and information. The report shares a range of examples of high impact messages for each of the key themes:
- You’re in control – Many people don’t feel connected or in control of their pension savings, which is a key reason why some withdraw their savings and move them to an alternative savings vehicle.
- Think forward to an income – When saving for retirement, people often think of the size of their pension pot rather than the level of income it might generate. By reframing pensions, the communications aim to discourage snap choices to access the whole pot.
- Start simple and take gradual steps – The research found that people prefer messages that start with simple choices, broken down into discrete steps, that then ramp up over time to cover their options in detail.
- Talk to someone else – For many people in this age group, money is something they’ve always dealt with on their own. This can make retirement planning seem daunting. Encouraging conversations with friends and family or sources of professional guidance could help people overcome the initial barriers to engagement.
The messages, tested among 1,500 pension savers in their 50s and early 60s, resulted in a significant positive impact on people’s intentions and outlook, including:
- 64% increase in the number of people who plan to arrange a call with a free government pensions advice service or speak to a financial advisor.
- 57% increase in the number of people that feel in control of their pension savings.
- 48% increase in the number of people who intend to use online tools and resources like calculators or advice forums.
- 34% increase in the number of people who said they were rethinking the age at which they will retire.
- 19% increase in the number of people who disagree with the idea of withdrawing their pension savings as soon as possible.
Steve Messenger, Head of UK Strategic Institutions at Invesco, comments:
“Whilst messaging alone can’t overcome the wide range of barriers pension savers face in later working life, the results of the study suggest that it can help people to start taking the right steps, at an appropriate pace, and to seek the guidance they need to prepare for retirement. It’s widely recognised that good communication is one of the greatest barriers faced by DC schemes and the study provides practical steps schemes can take to communicate with their members, at this critical stage of life, combined with a demonstrable uplift in their engagement as a result.”
Notes to editors
About the research
This research is a collaboration between Invesco, Invesco Consulting, maslansky + partners and Nest Insight. Gearing up for retirement (PDF) is the third report in a series looking at how language and framing can support engagement in retirement saving for UK pension savers.
- The first report, Beyond the defaults (PDF), looked at ways to encourage people to contribute more to their workplace pensions, where appropriate
- The second report, Small steps to a better future (PDF), moved forward on the pensions journey, presenting messages encouraging people in their 30s and 40s to take action
- This report, Gearing up for retirement (PDF), turns the clock forward once again. It asks whether well-designed messages can help people in their 50s and early 60s to start taking the right steps to a well-planned retirement.
About Nest Insight
Nest Insight is a public-benefit research and innovation centre. Our mission is to find ways to support people to be financially secure, both today and into retirement. We conduct rigorous, cutting-edge research, working collaboratively with industry and academic partners to understand the financial challenges facing low- and moderate-income households. We use these data-driven insights to identify and test practical, real-world solutions. Our findings are shared widely and freely so that people around the world can benefit from our work.
Nest Insight’s research programme is made possible through the generous support of funding partners, including its strategic partners BlackRock and Invesco. For more information visit nestinsight.org.uk
About Nest Insight’s strategic partner, Invesco
Invesco is an independent investment management firm dedicated to delivering an investment experience that helps people get more out of life. Building on its strong track record in defined contribution research, and its existing partnership with the University of Cambridge Judge Business School, Invesco partnered with Nest Insight to support its ambitious programme of research, publications and events. For more information, visit: invesco.co.uk NYSE: IVZ