Summary: Understanding member engagement with workplace pensions
Published 30 January 2023
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Authors
Joanna Crossfield, Research Director, Ipsos Mori Social Research Institute
Ayesha Lynn-Birkett, Senior Research Executive, Ipsos Mori Social Research Institute
Overview
This report sets out findings from qualitative research conducted by Ipsos into member engagement with workplace pensions. Sixty in-depth qualitative interviews were conducted with members who were saving into the default fund of their workplace pension scheme.
The research explored the understanding of and engagement with pensions amongst members who had been automatically enrolled into their workplace pension scheme. Department for Work and Pensions (DWP) were also interested in members’ responses to pension charges, including the clarity of charges and charging structures, and how members use that information.
Research context
Since its introduction in 2012, Automatic Enrolment (AE) has led to a significant increase in the proportion of employees who are saving for their retirement. By 2021 around 10 million people had been auto enrolled and were saving for their retirement[footnote 1], including many who previously had no pension savings.
Almost all people saving in a workplace pension scheme are invested in the default fund of their pension scheme and have not personally chosen how their pension is managed or invested.[footnote 2] For most pension savers, engagement with pension products and financial literacy is very low.
One measure the government has introduced to help improve outcomes for members is the charge cap, which seeks to protect members from unfairly high charges.
This research was conducted to find out more around pensions members’ knowledge, understanding and engagement. It is believed that better engagement will lead to better decision making and outcomes for pension members.
Main findings
1. Attitudes to pensions were characterised by detachment, fear, and complacency, which acted as barriers to engagement.
2. Participants were not actively seeking information about their pension. However, they recognised the importance of information they were sent and engaged with it. Letters and other printed information about pensions were seen as being important and were likely to be engaged with. Emails were seen as being easily missed or disregarded. It was also important for information to be succinct and visually engaging.
3. A barrier to engagement with information about their pension was knowing how to assess what it meant for their future.
4. In the interviews, participants understanding of their pension ranged from simply knowing who their provider was to knowing how much they had saved and what their future income projections were.
5. Participants trusted the decision their employers had made about which pension provider to use and felt it was safest to stay with the pension provider their employer had selected. Participants were concerned about losing their employer contributions if they changed pension provider.
6. Participants were shown an illustration of the current charging structures and found them hard to understand. They felt they would understand charges better if they were shown in pounds and pence rather than as percentages.
7. They were also asked to consider whether someone who found a pension provider with lower charges should switch. Participants felt it was better off to stay with their current provider to ensure they retained their employer pension contributions.
8. Barriers to consolidating deferred pots were knowing whether they could; fear of scams; not knowing information about their deferred pensions; not knowing how to consolidate; believing it would be hard work or not understanding the benefits of consolidation.
9. Those who had consolidated deferred pots had been prompted to do so, either by a new pension provider, contact or reading about it online.
10. When presented with two options for consolidation, either deferred pots being put into a government approved service or being consolidated into a new pension with their current employers, participants were happy with either option if they were reassured about the security of the new pension and process for transferring their funds.
11. This research found that the following could help motivate people to engage with their pension:
- ability to interpret what information about their pension meant for their future and what impact making changes could have
- ability to influence their pension outcomes
- understanding the benefits of engagement
- ability to view information about their pension easily
12. Low understanding of pensions amongst participants suggests that increasing understanding of pensions in an important first step to set information on pensions charges in context. This could also increase member engagement, by helping to reduce feelings of fear and confusion in relation to their pension.
Methodology
This research was conducted by Ipsos Mori. Fieldwork was conducted from October to November 2021. It consisted of 60 in-depth interviews conducted via Microsoft Teams or telephone. All participants were currently saving into the default scheme of a Defined Contribution pension with their current employer. Minimum quotas were applied on age, gender, financial confidence, and salary to ensure people from a broad range of circumstances were interviewed. Thematic analysis was conducted, and code frames were used to systematically summarise the full dataset.
Findings explained
Finding 1
Attitudes towards pensions were quite negative. Participants felt detached from their pension and little to no sense of ownership towards it. Participants were satisfied that they were enrolled in a pension scheme and trusted their employer to have chosen the best scheme for them. As such, they rarely thought about their pension and couldn’t see the benefit in engagement. Participants realised their pension was important so were concerned about losing it, for example through fraud or making a bad decision.
Finding 2
Participants were unlikely to be actively seeking information about their pension. Those that did had sought information from family and friends, colleagues and looking online. Participants engaged with the information they were sent because they felt it was important. Participants strongly recalled receiving their annual statement from which they skim read the ‘key’ information. Participants indicated that they would be more likely to engage with short, succinct, and visually appealing contact such as two-to-three-page summary statements. Detailed information such as quarterly magazines were reported as quite long and overwhelming. Monthly emails were reported as being less engaged with because they were easily passed over and felt too frequent a communication.
Finding 3
Participants reported understanding the information presented to them but did not know what to do with it. They did not know:
- how to assess whether what they had saved was enough or was a ‘good’ amount
- what their monthly savings would mean in real terms when they came to claim their pension
- what the impact on their savings, and income in retirement, would be if they decided to retire earlier or later
- what the impact of saving more would be
This meant that engaging with information about their pension could be a negative experience as it might confuse or scare them.
Finding 4
Participants had very low confidence in their knowledge about pensions and felt they knew nothing about them. This acted as a barrier to engagement or decision-making on pensions as they were worried about making a mistake. Those with the least knowledge knew that they had a pension which their employer had set up for them, which they and their employer paid into. Those with the most knowledge knew the total amount they had saved and what their projection for retirement was. Participants did not talk about how their pension was protected, the tax arrangements on their pension or how they would get the money when they came to retire. Participants had given little thought to how their pension worked, in part because they believed it was beyond their ability to understand.
Finding 5
Participants knew there were other pension providers who they could use but had typically not considered whether they could change provider. The primary barrier was lack of understanding about what the benefit would be for them. They trusted that their employer had much more understanding of pensions than them and would have researched the available options to make the best decision on their behalf. Opting out of this felt risky and participants worried about losing their employer contributions if they switched pension provider. Participants also demonstrated a strong bias towards the status quo as they believed that changing provider would require a lot of effort on their part. Reluctance to switch was about individuals’ lack of confidence about their understanding of their pension and high confidence in their employer’s decision on their behalf.
Finding 6
Information about pension charges was sometimes new information to participants. They had not considered what happened to the money that was in their pension, and they sometimes could not understand what they were being charged for. Participants found it hard to understand the current charging structure. They felt they would understand charges shown in pounds and pence better than charges shown as percentages.
Finding 7
Participants felt that staying with the current provider was better to ensure that they retained their employer’s contributions to their pension. Employer contributions were an important motivation for participants to save into their workplace pensions. There was also a perception that changing providers would require a lot of effort.
Finding 8
Several barriers to consolidation were identified. Some participants wanted to consolidate their deferred pensions to make their pensions savings less complicated but were not aware that they could. Some participants identified that they did not know the details of their deferred pensions. Participants were concerned about possible charges for consolidation or fearful of scams and loss of savings. There was a fear that consolidation would be difficult. Those with more understanding could see the benefits of consolidation, while those with less understanding couldn’t always see the downside to having multiple pension pots.
Finding 9
Those who had consolidated had been prompted to do so by a trusted source of information, such as a pension advisor at their place of work or through the Money Saving Expert website. This suggested the need for support and directed information about consolidation of deferred pension pots.
Finding 10
Participants were shown two different options for consolidation. Both appealed to participants due to the simplicity for the customer. It was perceived that the transfer and consolidation would be managed on their behalf. This would reduce concerns about mismanagement, scams, and loss of savings.
Finding 11
Participants could not always understand information they were given about their pensions. Engaging with their pension could be confusing and overwhelming and there was an expectation that it would be hard to understand. Simplifying information to make it accessible and presenting it in a visually engaging way would help with this.
Demonstrating to participants how to influence the outcomes associated with their pension could help increase ownership and engagement. For example, being able to see what impact retiring later or saving more could have. If participants could understand how they could influence their pensions, they could more easily see the benefits of engaging with them, creating a positive cycle of motivation to engage. Participants liked receiving information by post as it felt more important and tangible.
Finding 12
Greater engagement with pensions could be supported by addressing the barriers of detachment, complacency, and fear. Understanding what their current savings mean for the future and the impact of making changes, such as saving more or retiring later, could help to encourage greater member engagement. This will be important to contextualise pension charges.