Employers must do more to educate staff on pensions as UK 18-24 year olds retirement dreams struggle to match reality, with social conscience taking priority over profit, says CISI survey ​

by Lora Benson | Feb 05, 2018

10% of all UK 18-24 year olds who work do not know what a pension is and how it works, with women understanding less than men, according to the latest research from the Chartered Institute for Securities & Investment (CISI).

The UK-wide omnibus study* undertaken for CISI by YouGov, looked at attitudes, knowledge and behaviour of the UK population towards pensions. The findings reveal some surprising results, with indicators on the themes of financial capability, green and social impact investing and people’s overall hopes vs reality on their retirement horizon.

Financial capability and understanding

PigInfographicpensionsIn terms of understanding, of those aged 55+ in work, a quarter (26%) know what a pension is but, surprisingly, don’t know how they work (10% of those aged 18-24).

Of those workers who are contributing to a pension, over half (56%) of those surveyed don’t know how much money they are paying into their pension each month. Those in Scotland and London are least likely to know (62%) compared to those in the East of the UK (47%) and 49% of those in the Midlands.

Knowing the value of their total pension pot is one challenge too many as three quarters (76%) of respondents said they did not know the value of their fund, with significantly more women (80%) than men (72%) not knowing and those in Scotland being least likely to know (86%).

34percentnevercheckpensionaccountstatus

Over a third of respondents (34%) said they never checked the status of their pension account (43% women/28% men) with less than a third (31%) only checking less often than six monthly.

A quarter of over 55 year olds stated they never check their pension. 81percentchecktheirbankaccountThis compares to 81% of
people saying they check their bank account at least once a week.

One in eleven (9%) report that they are making additional contributions to their pension fund, with 39% saying that they have considered doing so. However, of those that have considered or are currently making additional payments a third (36%) of people were unaware that these pension contributions could be tax free (ie benefit from additional tax relief funded by the Government).

Hopes vs reality

Liketoandactuallyretire56vs40Most workers declared that they would like to retire younger than they believed they will, with 56% saying they would like to retire in their 60s versus 40% who said they thought they would actually retire in their 60s. Interestingly 4% of people said they didn’t want to retire at all.

Only one in eight (13%) said they would be able to retire when they wanted to as they believed they had saved and planned appropriately for retirement. This rose to one in six for men (16%) but was only one in ten (10%) for women.

A phased approach to withdrawing from work appealed to respondents as a quarter (25%) said they would like to transition into retirement, whilst one in nine (11%) of workers said they wanted to keep working for as long as possible.

8percentsaidstandardoflivingwillstaysameinretirementMoney was cited as a key factor in determining ability to retire, with almost a quarter (23%) of people saying they were not sure they would be able to retire when they wanted to, due to various financial commitments. Almost half of workers who hope to retire (45%) believed their standard of living would decrease in retirement, with 38% feeling their standard of living would stay the same (39% of 18-24 year olds) whilst 8% felt it would increase during retirement (18% of 18-24 year olds).

Eightpercentsaidstandardoflvingwouldincreasduringretirement

When it comes to funding retirement, most workers who hope to retire expect to fund this through their workplace pension (58%) or state pensions (57%). More than a quarter (27%) will rely on their private pension or on their bank savings, with this bank savings option being highest for under 35s. 10% of respondents did not know how they would fund their retirement.

However, when asked approximately how much money they paid monthly into these pensions over half (56%) didn’t know the amount. The median amount paid monthly into their pension pot by workers was £120, with the maximum of £164 paid monthly by 35-44 year olds (and an average of £50 by 18-24s, £90 by 25-34s, £150 by 45-54s and £122 by 55+).

Ethics and social impact investment


When questioned on their awareness that part of their private or workplace pension fund is invested, 28% said they were unaware (21% male vs 37% female). Respondents were most concerned about investments in armaments or countries with alleged dubious human rights (69%), slightly less so with the tobacco industry (56%), gambling industry (54%) and the alcohol industry (35%). There was noticeably more concern amongst young people  about investing in the alcohol industry (43% of 25-34s) compared to 30% of 35-44s.

56% of all workers with a pension were interested in investments in community and 61% environmental projects. 45% of all workers with a pension were interested after finding out that the return on community project investments could be lower (44% environmental projects). This social conscience indicator was highest amongst women (69%-66%) than men (56%-48%) and higher amongst young people (18-24 year olds 67%) than in those aged 55+ (51%).

The government commissioned report, Growing a Culture of Social Impact Investing in the UK, published in November 2017, indicated that government, the financial services profession and others should publish educational guidance on social impact investment that is easily accessible for all stakeholders, including individual investors.

Trust and financial advice

QualifiedfinancialadviserThe most trusted person a worker in the UK would go to for advice was a qualified financial adviser (46%), (an increase from 41% when this question was asked in a CISI survey in 2016) with a good friend/relative coming close at 28%, bank 25%, online guidance (20%) and the Government (8%). Five per cent said they would trust digital / print media and 10% said they would not trust anyone when seeking financial advice.

Clive Shelton Chartered FCSI, Chairman of TISA said: “This survey offers important insights around the issue of financial capability and adds to the evidence that a high percentage of individuals do not understand pensions or tax relief benefits. It highlights the need for industry and government to work collaboratively in order to develop a framework that builds public trust and enables individuals to make informed retirement decisions.  We must continue to increase good financial habits from an early age with education initiatives in schools, like KickStartMoney.co.uk, through to the delivery of effective engagement solutions for employees.”

Simon Culhane Chartered FCSI, CISI CEO said: “The lack of knowledge on the part of the general UK public relating to pensions has emerged as a worrying theme in our survey.  A pension is likely to be the biggest single asset owned by an individual – more than a shared house – yet receives little attention.

 “With 39% of 18-24 year olds believing their standard of living will stay the same during this period of their lives, yet £50 is the average amount this age group are currently paying into their pensions (with 35% of 18-24 year old workers saying they will rely on their bank savings to fund their retirement) the funding gap is too huge to make their retirement dreams a reality. Their dreams, sadly, are likely to become their nightmare.

“It is a surprise that over a third (36%) of those who are making or considering making additional payments are unaware of the tax advantages of pension contributions. The general lack of knowledge about pension is an educational deficiency that responsible employers should remedy.

“The survey shows that trust in qualified financial advice has grown and people should seek advice. I wonder how many are aware of the Pensions Advice Allowance introduced by the government in 2017, which allows up to £500 tax-free to be taken from an individual’s pension pot to redeem against the cost of retirement advice?”

Martin Ruskin CFPTM  Chartered MCSI and Chairman of the CISI IFP Forum Committee said: “This makes for sobering reading!  There is evidently a huge gap between the level of pension fund that is required to provide an adequate income in retirement and the levels of pension contributions that are being made.  Obtaining guidance from a certified/professional financial planner has arguably never been more important!  Planning for the future is essential to avoid financial heartache in the years beyond work.”

Ends

*The CISI omnibus survey on attitudes, knowledge and behaviour of the UK population towards pensions was conducted by YouGov 6-7 December 2017. All figures, unless otherwise stated, are from YouGov Plc.  Total sample size was 2078 UK adults, of which 1,141 UK adults aged 18+ in full or part-time work. The survey was carried out online. The figures have been weighted and are representative of all UK adults (aged 18+).

For further information visit www.cisi.org/yougovpensions