Financial disengagement could limit success of pension reforms

Financial disengagement among people approaching retirement could threaten the success of the government’s pension reforms, according to research by the Strategic Society Centre.


Its Defined capability: pensions, financial capability and decision-making among retirees research found that among respondents aged 55 to 64, only one in three with defined contribution (DC) pension savings keep an eye on inflation, one in four keep an eye on the stock market, and only 15% keep an eye on financial best-buy tables.

In addition, the research found that this age group has limited experience of financial products with the majority (85%) of DC savers not having an existing investment product.

Nearly a quarter (23%) do not have a savings account or an individual savings account (Isa).

However, among DC retirees, 20% have fixed-term investment bonds and 8% have unit or investment trusts, dropping to 12% and 2% among low-income DC retirees.

Across all age groups, general insurance is the most common product recently taken out, followed by an investment product among older age groups, for example, 15% of DC retirees, dropping to 6% of low-income DC retirees.

Among individuals that have taken out financial products, the most influential source of information among older people was information provided by financial providers, including websites (21%).

Across all age groups, best-buy information (33%) and family and friends (12%) were rated highly as an influential sources of information when choosing financial products.

James Lloyd, director of the Strategic Society Centre, said: “The results of the government’s April pensions revolution will, ultimately, depend on the financial capability and decision-making of millions of UK workers.

“However, this detailed research on the financial capability of DC pension savers approaching retirement shows worrying levels of financial disengagement, raising questions as to how effective people will be in seeking good-value, appropriate products throughout retirement, that protect them from changes in inflation and investment risk.

“Our research suggests the government’s pension freedoms could repeat the experience of countries like Australia, where freedom and choice for retirees has, ultimately, resulted in lower incomes and growing calls for reform.”