While we are settling on a new normal after the COVID-19 pandemic, Defined Contribution (DC) savers are contending with more challenges than ever before: Brexit, the impacts of the Russia-Ukraine War, sharp cost-of-living increases, and political instability. Our Global Retirement Reality Report looks at insights from 3,553 DC savers around the world to see if they are staying the course with their retirement savings strategies and which retirement systems globally are more robust to these headwinds. In this snapshot, we discuss the findings from the UK and compare the results to our 2020 survey.
In our 2022 Global Retirement Reality Report, our UK respondents showed a lack of confidence in their retirement prospects driven by inflation, the cost-of-living crisis, and the political climate. Despite this gloomy outlook, we were pleased to see that the majority of savers had not made changes to their contribution rates.
Government data shows that nearly 400,000 adults have left the labor force after the pandemic.1 Our survey shows that in this post-COVID reality where individuals are becoming more selective on if and how they work, flexibility is more important than ever when planning for the later years of work and retirement.
Respondents expected sustainable investing to be considered in their retirement portfolios on their behalf but did not want to compromise return or risk management.
Below, we share six key findings which can help pension schemes understand what is keeping their members up at night, and how they can help support their members to prepare confidently for retirement.
60% of the UK members in our survey were not optimistic about being financially prepared for retirement by the time they plan to stop working. This sentiment represented a deterioration in outlook compared to 2020 as well as the most pessimistic view relative to the global sample.
Against a backdrop of Brexit, the Russia-Ukraine War, political instability, and the fallout from COVID-19, it is not surprising that UK savers are gloomy about their futures. Digging further into the reasons behind the lack of confidence, inflation, not having spare money, and the political climate were most common.
Perhaps driven by heightened market volatility, 42% reported to have checked their balances more regularly over the past six months. While it may be concerning to see a notoriously unengaged population of savers paying closer attention to short-term fluctuations in pension balances, it was positive to see that most (80%) had maintained their levels of pension contributions over the past six months.
Interestingly, 18% of members surveyed had reduced their short-term savings (e.g., bank account/ISA savings) in the past six months, whereas only 6% had reduced their pension contributions. Despite financial difficulties faced in the present, inertia has meant that retirement savings are not adjusted frequently.
COVID-19 has changed the way that people work and view its balance with home life. After the peak of the pandemic, many changed jobs (or careers), joined the gig economy, left the workforce, or changed their working patterns. We asked if this shift, known as “the Great Resignation,” has changed outlooks on how and when people might retire. 17% of UK savers surveyed said their outlook had changed.2
We gave respondents the opportunity to provide more explanation on how they expect their working lives and retirements to change:
“I no longer want to travel to work daily. I am planning to enter a phased retirement in April ’24. It is only the delay in my State Pension that has me remaining in work.”
—Female, aged 55-64, United Kingdom
“I am considering requesting to work fewer hours than I currently do – which would give me more time to live my life now. It would also give me less money (and lower pension contributions), meaning I’d likely have to continue to work in some form for longer.”
—Male, aged 35-44, United Kingdom
"Having been through the pandemic and my role has become more home-based, I have reviewed what I want out of life and am considering what level of income I actually want along with how much my work life balance could change to gradually reduce the working days and retire when I feel ready rather than a notional age.”
—Male, 45-54, United Kingdom
The industry predicts that over time, the “traditional” retirement taking place as a cliff edge at some point in a member’s 60s will become less prevalent and a phased transition into retirement will become more common.3 One-quarter of UK members in our survey said that they expect to retire partially but continue doing some work.
When asked what supports would need to be in place to facilitate longer working lives, the most popular answers were:
This supports findings from the ONS, which found that among 50–59-year-olds considering returning to the workforce, the most important factors when choosing a job were flexible working hours (32%), good pay (23%), and being able to work from home (12%).4
When asked about which stage of retirement people are most concerned about budgeting, survey results showed that the first stage of retirement (age 65-80) was front of mind.
Figure 3: Which Stage of Retirement Are You Most Concerned About Budgeting or Spending Smartly?
This may be due to higher anticipated expenses in early retirement related to aspirations (e.g., holidays) or debts (e.g., mortgages). The average term mortgage purchased by first time buyers today is 30 years.5 In our survey, 44% of 18-34-year-olds ranked mortgage debt in the top three factors affecting their retirement confidence.
Digging deeper into financial planning concerns specific to retirement, “unexpected costs” and “not having the ability to generate a consistent stream of income throughout retirement” were ranked highest.
The pension freedoms introduced in 2014 abolished the requirement to purchase an annuity and gave members freedom with their DC pension savings in retirement.6 However, it is clear from our survey results that members require more help and support in converting a lifetime of savings into an income in retirement. From our UK sample:
With annuity rates increasing in correlation with bond yields, could guaranteed income products increase in popularity and help members address their budgeting concerns? While 48% of members surveyed were “not exactly sure what an annuity is/how it works,” only a minority (24%) believed they “don’t represent good value for money.”
When asked about the use of guaranteed income in retirement, 30% of members surveyed favored stability throughout their lifetime. However, the majority (51%), showed a preference for a hybrid approach:
With 85% of UK pension schemes committing to reduce the carbon intensity of their investment portfolios,7 the focus on sustainable investing has increased. In addition, member awareness of environmental, social, and governance issues is growing.8 In our survey, we explored the extent to which savers wanted sustainability criteria incorporated into their pension investments.
Close to half (49%) said that it was important that their pension savings were invested sustainably.
Over half (52%) said it should be included within their pension scheme investments on their behalf whereas a sizable proportion of 44% would like to pick investments based on issues that matter most to them.
While there are various tools for incorporating sustainable investing into pension investments, front of mind for many members is divesting from particular sectors or companies. When asked which areas they would not want their pension savings invested in, controversial weapons and violators of international norms were the most popular answers:
Figure 5: Which Sectors Would You Not Want Your Pension Savings Invested in? Please Select All That Apply
However, when asked to rank priorities for their investments, maximizing returns was most important to members. Schemes may therefore choose to look at how ESG investing can help manage risks and present these considerations in their member communications.
Figure 6: Please Rank the Following Priorities for Your Pension Investments
State Street Global Advisors commissioned global analytics firm YouGov to conduct an online survey across four countries, representing a range of retirement systems. The goal of the 2022 survey was to monitor retirement sentiment and compare trends across 2020, 2019, and 2018 datasets. YouGov surveyed 3,553 individual savers with access to employer-sponsored defined contribution plans between July 20 and August 22, 2022.
1 Recent ONS data has shown that in May-July 2022, there was 386,096 more economically inactive adults aged 50-64 years than in the pre-pandemic period (December 2019 to February 2020). Reasons for workers aged over 50 years leaving employment since the start of the coronavirus pandemic - Office for National Statistics
2 % responding “Yes” to “Has the fact that more people have been moving jobs recently, dubbed by the media as ‘The Great Resignation,’ changed your outlook on when and how you might retire?” UK=83%, US=70%, Ireland=71%, Australia=66%.
3 Pensions Policy Institute – The DC Future Book
4 Reasons for workers aged over 50 years leaving employment since the start of the coronavirus pandemic - Office for National Statistics
5 What is the average mortgage term for UK homebuyers? | Mortgage Introducer (mpamag.com)
6 Freedom and choice in pensions: government response to the consultation (publishing.service.gov.uk)
7 Secretary of State speech: Pension power to combat climate change - GOV.UK (www.gov.uk)
8 New DCIF report explains how and why it’s time for pension schemes to embrace ESG - The Defined Contribution Investment Forum
9 driving-change-through-the-voting-chain.pdf (publishing.service.gov.uk)
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Exp: November, 30 2023