Schemes and employers need to be careful that this year’s ‘Pension Awareness Week’ does not result in more people stopping contributions or requesting early access to their funds.
Aon has warned that this engagement exercise could create ‘unintended consequences’ due the combination of falling values of pension funds and a cost-of-living crisis. It says schemes need to be aware of these factors and ensure appropriate information is given to encourage long-term saving and active engagement with pensions.
Aon points out that while ceasing contributions may provide short-term financial relief, it is likely to have a negative impact on longer-term retirement plans and may result in people finding they need to delay their retirement for several years. Scheme need to ensure members get the right information to allow them to make better-informed decisions.
Aon’s 2021 DC and Financial Wellbeing survey of DC schemes highlighted a number of these issues that are now coming to the fore. It found that one in four DC members may not be able to come up with £1000 in an emergency, and almost half of respondents do not set a budget that they follow each month.
However if also found that over 75 percent of employees have access to financial education and planning tools.
Aon partner Karina Klimaszewski says: ”Pensions Awareness Week is a tremendous initiative that highlights the vital importance of retirement saving. That importance is never going to go away – but some of the current financial challenges that people face should be more temporary.
“Unfortunately, in the current environment of higher inflation and its impact on the cost of living, more and more people are likely to be facing challenging financial decisions amid increased volatility.”
Klimaszewski adds: “The Pensions Regulator has already rightly warned employers not to encourage members to leave schemes, but the reality for some individuals may involve a difficult trade-off between their current and future living standards – one which will be influenced by their personal situation. Pension schemes can help by ensuring that members have better insights on the consequences of their choices.
“We hope that this year’s Pensions Awareness Week acts as a prompt for employers and schemes to focus on signposting all the help that is available for members to help build their financial resilience.”
SEI Institutional group DC sales director Nigel Aston welcomed this new initiative but said schemes should be more ambitious in their aims.
He says: “When it comes to pensions saving, awareness is a more realistic aim than engagement, or even education, which the industry has been aspiring to for years.
“While we very much support greater pension awareness, we believe that we should aim a little higher, and that as an industry, we should strive for pension ‘ownership’.
“In practice, the concept of ‘ownership’ means putting members in touch with all of their money and helping them to realise that retirement savings are an important foundation to their overall financial health. It’s also important to position their pension as part of everyday budgeting, saving and spending plans so that it becomes more tangible and real, and therefore something that is front of mind, rather than an afterthought.”
