DCIF research reveals pension’s engagement gap between high and low earners

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Industry research by The Defined Contribution Investment Forum (DCIF) has found that people who have higher incomes, and who are members of higher social grades, are more engaged with the pension savings process than those with lower earnings.  

The research showed that factors such as income, knowing where their funds are invested and age has a significant influence on whether people have actively engaged with their pension and have carried out activities such as working out their pension value. 

Over a third of scheme members earning £40,000 or more per annum said they had made an active choice about their investments against only 22% of those earning less.  This means that higher earners were more than 50% more likely to make an 'active choice'.

Despite this, almost one third of those questioned had a low comprehension of the level of investment risk they are taking with these funds.  The research also showed that not only engagement but also awareness of risk increases with income and social grade; those who knew where their savings are invested and choose their own funds were more risk aware and were willing to accept more risk.  Those who actively chose where their pension funds should be invested also have the highest expectations of what they will receive at retirement.

The research revealed that those who expect their pension to pay less than what they will need expect to make up the gap in a variety of ways. The majority (26%) plan to use other savings, whilst 18% plan to increase their pension contributions. Some intend to sell their assets (14%); the same proportion plan to cut back their living expenses. A small proportion (6%) plan to rely on an additional pension earned elsewhere.

Commenting on the findings, DCIF executive director Louise Farrand said: “It is clear from this research that many people don’t seem to have a plan for living in retirement. Consumers seem to think that their pension will be sufficient to sustain them but, given that UK households’ savings levels fell to the lowest rate on record at the end of 2015, according to the Office for National Statistics, is it realistic to depend on them?  It is also worrying to see that engagement levels are so clearly delineated by income level, with the savers on the lowest incomes the least engaged with their pensions.

“It’s still early days for auto-enrolment, however, and so far the opt-out rates are very low, which is extremely encouraging. It is also encouraging that a significant proportion of savers have made an active investment choice. In the longer term, savers will have no choice but to engage with their DC pension savings if they want to retire in comfort. Many will need to make an active decision to increase their contribution rates to a sustainable level, and when they reach the age of 55, freedom and choice will demand further engagement with some complex decisions.

“Auto-enrolment was created to bring the disengaged into the pensions fold and help them to engage with their savings and work towards a more comfortable retirement. Phase one has been a great success, but these survey results illustrate the importance now of focusing on the next challenge - member engagement.”

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