Growing concerns over workplace pensions apathy

Research by Barnett Waddingham has revealed a concerning trend among UK workers regarding their engagement with their defined contribution (DC) pension schemes.

Our survey, which involved over 2,000 UK workers contributing to workplace DC pensions, uncovered that more than a quarter (28%) have never logged in to check their pension online or on their phone. 

This trend is worryingly consistent across all age groups. More concerning still, 37% of those planning to retire within the next two years have never checked their pension online, relying instead on paper statements or, in some cases, no information at all.

This research highlights a significant issue of pension apathy, which has substantial implications for financial planning. While 57% of respondents have used a pension calculator to estimate their retirement pot, 43% have not. Furthermore, 67% have never sought advice from a financial adviser regarding their pension. This figure remains largely unchanged even as individuals approach retirement, with a notable gender disparity: 42% of men versus 27% of women have consulted an adviser.

Reliance on default options

A large proportion of UK savers exhibit a worrying level of trust or indifference towards their pension investments. Nearly three-quarters (72%) have never altered how their pension is invested. Among younger savers, 66% of 25-30-year-olds and 72% of 31-35-year-olds remain in their scheme’s default fund, which is often too low-risk to generate the necessary returns for a healthy retirement pot. Women are particularly prone to this, with 79% in default funds compared to 62% of men.

Insufficient contributions

Most workers are contributing only the default amount to their pensions, which is typically insufficient for a comfortable retirement. Only 41% of respondents have increased their monthly pension contributions, leaving 59% of people (and 66% of women) contributing the bare minimum. Additionally, only 23% have ever made a lump sum contribution to their workplace pension, with men being more likely to do so than women (32% versus 17%).

The trend of opting out

Alarmingly, 26% of workers have previously opted out of their workplace pension. This figure rises to 55% among 18-24-year-olds and over a third (36%) among 25-30-year-olds. This trend is likely driven by the increasing cost of living, but opting out of pension contributions now severely compromises financial security in later life.

The 'ostrich effect'

Our auto-enrolment system appears to have inadvertently fostered a generation of 'pension ostriches' — individuals who avoid engaging with their pension, hoping the problem will resolve itself. However, ignoring pension management will not lead to favourable outcomes in the long run.

Encouraging better habits

DC pensions have the potential to be highly beneficial. Our recent analysis of the UK’s master trust landscape highlights strong governance, good returns, and low fees. The primary issue is inadequate saving and the lack of encouragement from employers for better saving habits. Strategies such as auto-escalation of contributions during pay rises or career breaks can significantly improve outcomes.

A call to action

It is imperative that we encourage greater engagement among scheme members. If every worker spent just 20 minutes logging into their workplace pension, using a calculator to estimate their retirement pot, and considering an increase in contributions by just 1% this year, we would make substantial progress in mitigating the impending pensions crisis in the UK.

It is vital that we ensure that our workforce is well-prepared for retirement, fostering a culture of proactive pension management and financial security.