Andrew Megson: "Naturally, many people may feel that retirement is years away, and so will not want to prioritise such long-term savings. However, neglecting retirement strategies and pension savings can land savers in deep water later down the line."
Andrew Megson explores why people are seemingly unengaged with their pension pots and asks what advisers and the wider financial sphere can do to help...
The financial consequences of the Covid-19 pandemic have arguably been just as widely reported as they have widespread.
Throughout the crisis, news outlets and financial commentators have covered these economic repercussions at length, and for good reason.
Indeed, many have faced furlough and even redundancy, with the UK's unemployment rate sitting at a staggering 5.1% in the final three months of 2020 - an increase of 1.3% on 2019. Consequently, many individuals have seen their income drastically reduced.
One would expect that, given the circumstances, more Britons would be thinking about their financial futures, and what the volatile economy means for them in the grand scheme of things. In particular, for those nearing retirement, I would expect to see more people shifting their retirement strategies and seeking advice - but the reality is quite the contrary.
According to a recent survey of more than 1,200 UK adults aged 40 over, commissioned by My Pension Expert, over the past twelve months, the overwhelming majority (78%) of UK adults over 40 have not reviewed their retirement savings strategy at all. Moreover, just 14% of over-40s have sought independent financial advice throughout this period.
Following these figures, it comes as no surprise that almost half (46%) of prospective retirees have not even checked to see the current value of their pension pot throughout the past twelve months.
This lack of engagement is very concerning indeed. And evidence suggests that this is not solely because of the financial pressures caused by the Coronavirus pandemic - a recent study by Citizen's Advice found that almost one in five (19%) of Britons claim not to be interested in the value of their pension pot, whilst 15% claim that they simply do not want to think about their pension.
Naturally, many people may feel that retirement is years away, and so will not want to prioritise such long-term savings. However, neglecting retirement strategies and pension savings can land savers in deep water later down the line.
Failing to regularly check in with one's pension savings could result in individuals failing to meet important savings milestones, which may affect their ability to achieve a sustainable income in retirement.
Consequently, savers could be driven to make ill-advised financial decisions, such as switching to higher-risk investment strategies without proper advice, in order to grow their pension pot more quickly. And given that such investments can fluctuate substantially in line with market volatility - something we have witnessed in spades as a result of Covid-19 - savers run the risk of seeing the value of their pot deplete even further and their savings goals scuppered, if an investment performs poorly.
Clearly, more must be done to prompt savers to keep on top of their pension investments, shift their financial strategies if required, and perhaps even more vitally, seek advice to do so.
Achieving this will not be the sole responsibility of one party - it will require input from the entire industry. From advisers and life companies themselves to the FCA more broadly, all parties must dedicate time and resource to ensuring that individuals are more financially literate. Specifically, we must build greater awareness surrounding the importance of consistent engagement with pensions.
In many cases, it will be necessary for individuals to seek advice to gain a thorough understanding of their pension strategy, as well as any refinements that can be made to help in the current climate.
One solution for advisers who are aiming to keep their clients proactively engaged with their retirement finances would be as simple as stripping out jargon when offering advice. In reality, the world of financial planning can be extremely complex, and often simple is best when discussing the nitty gritty.
Likewise, the government's pension dashboard initiative, which will give savers the ability to check in on the health of their lifetime pension savings securely and in one place, should also go some way to promoting greater pension engagement - particularly those who have amassed various pots from different employers. That said, the scheme has been subject to a number of delays and is now touted for release in 2023.
Ultimately, consumer behaviour is unlikely to change overnight. There is a long way to go before individuals begin checking up on the health of their pension savings on a regular basis, or before the dashboard scheme comes into place.
Until then, we must work to improve accessibility to financial advice, as well as a greater understanding of the industry at large. Then, I believe that we will eventually see a marked improvement in UK pension engagement.