COVID-19 has impacted almost every aspect of people’s lives globally. Whilst the short-term financial implications of the pandemic are front of mind for many individuals, we were interested to see whether these worries changed long-term savings behaviour. In this year’s Global Retirement Reality Report (GR3), we investigate the impact that COVID-19 has had on personal finances and behaviour around retirement planning. In this report, we share the results of our survey of defined contribution (DC) pension scheme members in the United Kingdom.
Whilst a third of UK savers in our survey said they have been negatively impacted financially by COVID-19 and have adjusted their short-term spending accordingly, this hasn’t yet affected long-term views around retirement confidence. The inertia of the UK’s auto-enrolment system continues to show strength, with only 7% of members having reduced or stopped their pension contributions (below the global average of 13%) and 80% taking no action with regard to their retirement savings.
Although not a direct result of COVID-19, we continue to see a lack of retirement confidence in the UK. One of the key reasons limiting retirement confidence was not having enough spare money to save for retirement. This, coupled with a strong desire from members for their employers to continue with contributions, highlights the importance of maintaining automatic levels of saving.
We were pleased to see a good sense of awareness from members about the risks of overreacting to market events and “selling at the bottom,” with almost 60% of the sample believing now is a good time to invest for the long term. Only 5% of members felt that they should sell stock market investments and switch into something lower risk. Members also showed an appreciation for lower volatility strategies and for companies that are managed responsibly with regard to the crisis. These findings provide useful insight into the kinds of funds members would like to see their savings invested in.
We began by taking a pulse check on the current financial situations of individuals, compared with the period before the COVID-19 outbreak. With 24% of the sample reporting to be furloughed from employment, our results were in line with data from the Office for National Statistics, which reported that 27% of the UK workforce had been furloughed and less than 1% had been made redundant between 23 March and 5 April 2020. 1
Given that a significant number of savers have seen an impact to their jobs and the income they receive, it is not surprising that almost one-third (31%) of our sample felt that they were worse off financially compared with before the outbreak. Whilst the majority (42%) of the sample said that their financial situation hadn’t changed, we may not see such a positive picture in the future as furlough schemes come to an end and redundancies increase.
What impact does this change in employment circumstances have on retirement confidence? Are people thinking that far ahead? We asked our savers how optimistic they are that they will be financially prepared for retirement by the time they plan to stop working.
However, when we asked members the same question in 2018, we gathered similar results, suggesting that this lack in confidence may not be solely attributable to the COVID-19 pandemic.
Whilst 18% of the UK sample said that the COVID-19 situation was having a high impact on their retirement confidence levels, the majority (73%) said that COVID-19 was having low or no impact.
More pertinent than COVID-19 in the impact on retirement confidence was:
However, some members displayed a degree of worry with regard to COVID-19:
“I am most worried about being able to save enough. I am too scared currently to put any more money into my retirement. I want a certain amount of cash around me for any emergency that COVID-19 could create for me and my family.”
It was clear from our survey that the impact of COVID-19 had limited implications for long-term retirement confidence, suggesting that there is an expectation that negative financial impacts will be short-lived.
The majority of UK savers felt that the impact that COVID-19 would have on their finances would most likely last less than a year.
This view was shared among other markets surveyed, with the majority of members feeling that the effect COVID-19 will have on their finances will be no longer than a year and a half.
Whilst we could take comfort from members not expecting a long-term negative impact, we are still in the early stages of the crisis with a lot of uncertainty about the future state of the world.
Key Finding #5: Whilst most have adjusted their short-term saving and spending habits, few have made changes to their retirement saving behaviour
Our survey results show that there continue to be low levels of engagement from members when it comes to saving for retirement. Whilst a significant proportion of savers have recently adjusted their short-term saving and spending habits, the majority have not thought about their retirement savings plan. Only 7% of UK members claimed to have reduced or stopped their pension contributions, which is below the global average of 13%.
We asked members if they had taken any other actions with regard to their retirement savings plans such as checking balances more regularly or seeking financial advice. Whilst 13% had checked their balances more regularly, the majority had taken no action whatsoever.
Inertia has meant that the majority of members have not thought about their rate of saving, and are therefore continuing to save for their future even in a time of financial difficulty.
Key Finding #6: Savers would not be happy for their employer to pause contributions into their retirement savings plan
Given the difficulties that thousands of businesses in the UK have faced during the pandemic, we asked savers whether they would be comfortable with their employer stopping retirement contributions temporarily if the employer were struggling to survive in the current climate.
Across all of the countries surveyed, half (50%) of members said they would disagree with the idea of their employer stopping contributions; UK members felt even more strongly about the matter, perhaps because of the precedent that auto-enrolment has set.
Nearly 60% of members would not want their employer to pause pension contributions.
Key Finding #7: Equities are seen as a good long-term investment, but members prefer lower volatility
March saw 20%+ falls in stock prices and record-high levels of volatility. Whilst some investors flocked to safe assets, others took the opportunity to buy at potentially low valuations. The members in our survey indicated a sense of awareness about crystalising losses, with only 5% thinking they should sell their equity investments. Meanwhile, 59% of members thought that now may be an opportunity to invest in the stock market for the long term.
However, the majority said they would prefer an investment that had a lower expected return but with less chance of loss.
59% would prefer lower expected returns if it means less chance of loss.
Key Finding #8: Almost a third of members are in favour of responsible investments
The COVID-19 crisis has shone a light on the way that companies are managed with regard to environmental, social and corporate governance (ESG) principles. Immediate issues such as employee health, serving and protecting customers, and ensuring the overall safety of supply chains have important implications for company performance.
We explored the extent to which savers shared this view and whether they would prefer their retirement savings to be invested in companies that have taken some of these issues into account in their response to the crisis.
Close to one-third of respondents said they would want their retirement savings invested in companies that treated their workers well during the crisis.
What can you do?
2 231 members said they were “not at all optimistic” and 282 members said they were “slightly optimistic.”
The views expressed in this material are the views of SSGA Defined Contribution as at 1 July 2020, and are subject to change based on market and other conditions.
All material has been obtained from sources believed to be reliable. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
This document contains certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected.
The information provided does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. Investing involves risk, including the risk of loss of principal. The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.
Investing involves risk, including the risk of loss of principal. Diversification does not ensure a profit or guarantee against loss.
The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without SSGA’s express written consent.
The information provided does not constitute investment advice as such term is defined under the Markets in Financial Instruments Directive (2014/65/EU) or applicable Swiss regulation and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell any investment. It does not take into account any investor's or potential investor’s particular investment objectives, strategies, tax status, risk appetite or investment horizon. If you require investment advice you should consult your tax and financial or other professional advisor.
The information contained in this communication is not a research recommendation or ‘investment research’ and is classified as a ‘Marketing Communication’ in accordance with the Markets in Financial Instruments Directive (2014/65/EU) or applicable Swiss regulation. This means that this marketing communication (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research.
© 2022 State Street Corporation. All Rights Reserved.
Information Classification: General
EXP: 31 July 2023