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 will change 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 overview, we share the results of our survey of Irish defined contribution (DC) pension scheme members.
COVID-19 is among the top three reasons given by Irish savers for having low retirement confidence. Whilst the majority expect the financial impact of the pandemic to be short-lived, Irish savers are already showing a degree of reaction to the crisis in their retirement savings. Compared with the other countries surveyed, a greater proportion of Irish savers:
Have checked their retirement savings balance more regularly
Have reduced or stopped contributions
Are willing for their employer to pause contributions to help their businesses survive the crisis
With the plans for pension reforms in Ireland progressing, these results stress the importance of having a system built around automation and inertia, requiring minimal engagement and action from members.
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 more than half of the sample believing now is a good time to invest for the long term. Only 16% 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 being 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.
Key Finding #1: Almost 40% of Irish savers have experienced a deterioration in their financial situation since the COVID-19 outbreak
We began by taking a pulse check on the current financial situations of individuals, compared with the period before the COVID-19 outbreak. In Ireland, 71% of the sample had been impacted in some form, such as having reduced pay or reduced hours, a higher proportion compared with the other countries surveyed.
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 40% of our sample felt they are worse off financially compared with before the outbreak.
Key Finding #2: Retirement confidence has fallen since 2018
What impact do these changes 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.
41% said they were not optimistic about their retirement.1
However, when we asked members the same question in 2018, we found similar results, suggesting that this lack in confidence may not be solely attributable to the COVID-19 pandemic.
Key Finding #3: Many think that the impact of COVID-19 will be short-lived
We wanted to assess whether the impact of COVID-19 was expected to continue into the long term, therefore having greater implications for retirement savings.
The majority of Irish savers felt that the impact that COVID-19 would have on their finances would most likely last a year or less.
This view was shared among members in the other countries surveyed. 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 great degree of uncertainty about the future state of the world.
Key Finding #4: COVID-19 is just one of the factors limiting retirement confidence
Whilst most thought that the financial impact of the crisis would be short-lived, 38% of the Irish sample said that the COVID-19 situation was having a high impact on their retirement confidence levels.
“Not sure if I will still have a job after COVID, so I won’t be able to continue to pay into my pension fund if I don’t have a job.”
However, other key factors impacting retirement confidence in Ireland were:
No spare money to save for retirement
Uncertainty about retirement plans
Key Finding #5: Changes are beginning to filter through to retirement savings plans
The majority of the Irish sample (65%) have not made any changes to the amount they save into their retirement savings plans since the pandemic began; however, almost a quarter (22%) said they have reduced or stopped their rate of saving, notably higher than the global average (13%). Interestingly, only 7% of our UK sample had done the same, suggesting the inertia that their auto-enrolment system leverages has been a successful tool for maintaining savings rates.
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. Similarly, Irish savers had taken more action than their global equivalents, particularly when it came to checking balances.
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 Ireland have faced during the pandemic, we asked savers whether they would be comfortable with their employer stopping 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. Irish members, whilst not in favour of the concept, showed a lower level of disagreement.
41% of Irish 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 over half believing that now is a good time to buy equities 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.
58% 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.
We continue to see a lack of retirement confidence in Ireland because of COVID-19, as well as long-standing issues such as having no spare money and uncertainty around retirement plans. This reinforces the need for automatic enrolment to get members saving regular amounts and for clear communications to help navigate uncertainty.
Members expect the impact of COVID-19 to be short-lived; however, some have made changes to their retirement savings behaviour. Comparing the behaviour of Irish members and members in other countries surveyed, particularly the UK, also strengthens the case for moving automatic enrolment forward in Ireland. Under such a system, inertia could reduce the likelihood of members reviewing (and reducing) savings levels on a regular basis. The goal should be getting more Irish people saving more money into good default funds — removing the need for members to take action.
A preference for investments with lower volatility came through, even if this means lower returns. Big drops in value have the potential to knock members’ confidence, and it is therefore important that defaults incorporate mechanisms to limit severe drawdowns and that these benefits are communicated to members.
Managing the social impact of the crisis is seen to be important, with immediate issues such as employee health, serving and protecting customers, and ensuring the overall safety of supply chains having implications for company performance.
What can you do?
Consider targeted communications to help build member confidence in times of uncertainty. Emphasize key messages such as the importance of saving for the long term, how to navigate retirement income decisions and the benefits of the default.
Continue to support and encourage both employee and employer contributions into retirement savings plans.
Incorporate volatility protection mechanisms into defaults to reduce drawdowns.
Speak to your asset manager about how their stewardship activities are promoting good ESG behaviour in response to COVID-19.
As the COVID-19 pandemic was peaking in many countries this spring, and many had adjusted to the new normal enforced by nationwide lockdowns, State Street Global Advisors commissioned YouGov to conduct an online survey across five countries. YouGov surveyed 3,479 individual savers with access to defined contribution schemes:
1 44 members said they were “not at all optimistic” and 123 members said they were “slightly optimistic.”
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