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Article | Corporate and Trustee Briefing

How to save your workers from pension paralysis

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By Jo Kite and Minh Tran | March 13, 2017

The Savings Psyche of the UK surveyed 2,000 workers exploring their behaviour and approach to retirement saving. Jo Kite and Minh Tran discuss the findings of the survey and how employers can better encourage their employees to be more proactive when it comes to saving for retirement.

Whilst auto-enrolment has successfully increased participation in pension schemes, the number of people saving, and the amount they are saving for retirement remains vastly below the ideal level. ONS figures reveal that we currently save less than at any other point since the onset of the crisis. From fluctuating economic conditions and wage freezes to rising living costs, and most recently, increased political uncertainty, today’s climate is full of excuses for people not to save.

However, recent research we have undertaken with Nottingham University Business School adds further complexity to the issue. We found that inherent personality traits have a profound impact on the way we save. According to lifestyle, income and situation, people will respond in different ways when confronted with the same choices.

The Savings Psyche of the UK surveyed 2,000 workers exploring their behaviour and approach to retirement saving. The findings reveal some fascinating behavioural motivations and drivers behind the UK’s saving psyche summarised in six different types of persona.

In this article, Jo Kite, Managing Director of LifeSight and Minh Tran, Senior Consultant, Willis Towers Watson, discuss what this means for employers and how they can better encourage their employees to be more proactive when it comes to saving for retirement.

Can you give us an overview of the personas the research has identified

Jo: The six saving persona types found in the report highlight the vast range of saving attitudes in the UK. The saving habits of the six groups are:

  • Apathetic savers (27%) lack knowledge about financial decisions and have average to low financial knowledge and understanding.
  • Suburban savers (19%) are practical planners, who save the highest proportion of monthly savings.
  • Financial worriers (14%) fret about short and long-term finances and agonise over making financial decisions.
  • Short-term savers (15%) worry about their financial future, are likely to be part of their pension scheme and will review multiple products before making a financial decision.
  • You only live once (YOLO) (15%) tend to be younger with a high level of wealth, but are not good at saving as they are materialistic and live in the moment.
  • Risk takers (14%) never experience debt or financial problems and are good at savings, they live for now whilst taking care of their future.

There is much more information in the full report which can be found here.

Why are we in a situation where many people are not saving enough?

Minh: Instead of encouraging people to save, the increased choice created through things like auto-enrolment and the pension freedoms seem to have created a decision roadblock. Coupled with economic uncertainty and affordability issues, we have a pension paralysis where most employees defer decision making where possible which can lead to saving less and in a way that is not optimal for their needs. Our research also found that people are prioritising more short-term options, such as saving for a holiday or a house over retirement.

Jo: We are not seeing people commit more to their pension pots and ultimately it is this that drives good outcomes for the member. Whilst for some, affordability may be an issue, this is not true for many, where a small increase could make a big difference in later life. However, there are other roadblocks, the survey showed 35% felt they had a lack of knowledge around financial decisions, 25% cited trust issues with financial institutions and 25% also felt the choices available were too complex or confusing. This means that many individuals are saving the bare minimum.

What more could and should employers be doing to help people to save more?

Jo: Recognising that one size does not fit all is a good start. Employers must recognise that they have a diverse workforce and look to support individual’s financial situations better. For example, we have found in LifeSight that using simple, relatable metrics and tools, alongside engaging videos and personalised communications to be effective. This ongoing and personalised communication can then lead to members interacting at the right time for them, in the right way for them.

Minh: We have also seen some companies offering wider savings mechanisms as incentives which seems to be very successful. Offering flexibility that allows your employees to choose the saving mechanism that works best for them whilst also providing relevant education about the options is important. Employers should also be utilising technology more to improve their communication strategies. Take the banking industry as an example, consumers are able to check their bank balance with a few clicks on their mobile phone using an app. That is what we think the pension industry should be aiming for. Simple, easy-to-use apps and interfaces that help savers to see exactly how much money they have saved and what this means for their retirement.

What is the one key message from this research?

Jo: We are urging employers to open up different lines of communication when it comes to pensions. Employees need to start thinking about their long-term saving strategies in different ways and talking about it with employers, friends and family is the first step towards this. Our work with behavioural economist James Devlin for this study has also highlighted the importance of using the right behavioural stimuli for the right people depending on their persona. Knowledge and confidence in financial decision making is polarised across the UK and this needs to be taken into account. What works for one person may not work for another, and think it’s important to give everyone an opportunity to engage in saving in a way that works for them.

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