Planning for retirement: the pensions gap and attitudes to working longer
Increased life expectancy and the fact that we are generally living for longer means that it is as important as ever to be prepared for retirement and be equipped with the knowledge and resources to enjoy financial stability when we eventually withdraw from the labour market.
But are we sufficiently prepared when it comes to retirement? How much do we know about our pension? What are our expectations for retirement and what potential incentives would encourage us to work for longer?
These questions were addressed in a report produced for Phoenix Insights. The research project consisted of secondary analysis of British Social Attitudes (BSA) 2021 data, specifically on issues surrounding pensions and retirement, funded by the Department for Work and Pensions (DWP).
Having a good knowledge of pension issues and a sound understanding of the differential pathways leading to retirement places people in a better position to make important decisions about matters that will affect their future financial security. Nevertheless, when it comes to self-perceived knowledge, including workplace and private pensions, the general public doesn’t feel confident about how much they know. BSA 2021 figures show that 58% of respondents reported low confidence in their knowledge of pension issues and 28% said they knew little or nothing.
Consistently we found that sex, age and income were the strongest predictors of self-reported knowledge of pension issues with men, older people and those with higher incomes considering themselves more savvy on pension topics.
The survey also asked respondents where they were likely to have gotten information and advice about pensions and money in retirement. Just as many people (18%) said they would get their information from family and friends, compared with formal sources such as DWP website (17%) or pension providers (16%), indicating that quite a high proportion of people would be getting their information from informal, and possibly unreliable, sources.
Despite people’s poor knowledge of pensions issues, most of those who were employees (78%) reported that they regularly saved into a workplace pension, which is not surprising given that it is a legal requirement for employers to enrol qualifying employees into a scheme. The proportion of those who said they regularly saved into a workplace pension, was higher for those on a higher income: 90% of employees in the highest income bracket said they regularly saved into workplace pensions, compared to 57% of those on the lowest income bracket. There were also notable differences by age, with those aged 18-24 being less likely to save into workplace pensions than those in other age groups.
Even when contributing regularly to a pension scheme, the results suggest that employees don’t necessarily know much about the schemes they pay into, with around two in three (65%) saying they knew little or nothing about workplace pensions. This begs the question about whether we are sufficiently keeping track of our workplace pensions, our contributions and how much we should be paying in order to be able to sustain ourselves later in life.
When it comes to private pensions, it appears that most people don’t make use of these, with only 38% saying they regularly saved into a private pension scheme, and those who did were more likely to be on higher incomes, suggesting that private pension schemes may be unaffordable for those on lower incomes.
The data indicates that people who are in better financial position during their working lives are likely to remain in a better financial position post-retirement and better equipped with knowledge to make better financial decisions in planning their future.
It has been argued that to sustain an ageing society, older people will have to work for longer and the UK Government has taken various initiatives to encourage employment among older people, as well as having plans to continue increasing the State Pension Age.
BSA 2021 figures show that just 8% of people over the age of 65 were still actively participating in the labour market and respondents were asked what, if anything, would provide an incentive to work longer, perhaps beyond retirement age. The most popular incentives were the ability to work part-time (58%) and flexible working arrangements (57%). Although these were the most popular options across all income bands, they were generally more popular among those on higher incomes than those on lower incomes.
Half of the survey respondents, however, believed that they would be likely to continue doing some paid work after formally retiring from the labour market, a proportion that was higher in men (53%) compared to women (46%) and, perhaps surprisingly, highest (61%) for those on the highest income bracket.
These results suggest that if employers are keen to retain their older workforce for longer, they should be open to consider flexible working arrangements and allow people to reduce their hours as they grow older. A fluid approach toward retirement may be beneficial for both employees and employers.
Each year the British Social Attitudes (BSA) collects data on a variety of topics covering attitudes on a breadth of social issues. Examples include attitudes to politics, family matters, climate change, immigration, housing, to name a few. There are a wealth of opportunities to use our data. If you are interested in secondary analysis projects, please contact the BSA team at BSA@natcen.ac.uk.