Context

The study was commissioned by the National Employment Savings Trust (NEST) in the context of the introduction of automatic enrolment and the then forthcoming new flexibility in individual management of pensions.

The study

The study sought to provide better understanding of consumer expectations and concerns about long-term savings in order to help the industry to better engage with consumers on their terms and to promote consumer trust. It brought together findings from a number of qualitative and quantitative insight studies undertaken by NEST, as well as other sources, and particularly those whose population samples were similar to the un-pensioned i.e. those UK workers who were eligible for automatic enrolment in a workplace pension scheme but were not doing so.

Key findings

• • Consumers had low trust in the pensions industry, especially in the light of the wider financial crisis. They saw low pension returns as resulting from mismanagement.
  • Consumers saw pensions as lying somewhere between safe bank savings and investment, with higher returns but without investment risk.
  • They felt more disconnected from pensions than from other forms of saving and felt that someone else was in control of their investment. Limited information added to their sense that they could do little to affect future pension performance.
  • Consumers did not easily understand the difference between volatility and risk, especially within the wider image of retirement saving as being prudent, and so were uncomfortable with any idea of investment risk. They were willing to trade levels of return against higher certainty.
  • While there is a general international sense that people tend to be inert in regard to pensions, concern during the financial crisis led many UK consumers to take action.
• • The priorities for consumers were usually reassurance that investors take account of their interests and are managing funds responsibly. More information alone was not necessarily helpful, although explaining such concepts as how risk is managed could be useful.
  • Consumers were most concerned to know what happens to their money, whether it is safe, and what returns they will ultimately get.
  • They felt more connected if they understood the effect of differing contributions and length of savings.
  • Probabilistic projections were better than deterministic models. This approach focuses on and explains a range of possible outcomes, rather than an apparently more definite deterministic approach, which can give consumers an illusion of certainty but be undermined by statements about risk. These can lead consumers to focus on a worst-case scenario.
• • 'Guarantees' can send different messages to consumers. Many would prefer to sacrifice higher returns associated with higher risk rather than paying more.
  • The potential impact of loss causes many consumers to focus strongly on worst-case scenarios when told that their investment is necessarily at risk.
  • When offered a choice, 40% of consumers chose the product with the lowest risk, even if this was not a rational response to their interests. In real life, people do trade risk against the need to build a reasonable retirement pot. Providing consumers with more relevant detail can help them to achieve a reasonable balance.
  • They understood differences between pension products and investment approaches poorly.
  • Product design might respond to these issues by balancing lost, relative security and highest outcome, as well as by being more open and reassuring about risk management and options for consumer engagement.

Points to consider

• • The study does not claim to be a systematic review or analysis of earlier findings.
  • Circumstances may have changed since the time of writing.
• • The study provides a useful overview of consumer attitudes and beliefs.
• • The study provides little detail of coverage of earlier surveys, though does highlight some of their earlier work.

Full report

Improving consumer confidence in saving for retirement- full report