One out of every five UK pension scheme members expect to work into their 70s, according to research by Willis Towers Watson, with working later perceived as the main solution to inadequate retirement savings for those over 50.
Willis Towers Watson’s 2015/2016 Global Benefits Attitudes Survey reveals that 45 per cent of pension scheme members over 50 said they would work longer if they faced a shortfall in retirement (a number that rose to 63 per cent for those with significant debt), just 22 per cent said they would save more, reflecting that this is not a viable option for many employees nearing retirement and 29 per cent preferred to accept a lower income in retirement.
Retirement security is rising up the agenda
Over half of employees do not believe they will have sufficient financial resources 25 years into retirement, while 39 per cent are not confident their resources will stretch even 15 years into retirement.
These worries about retirement adequacy are increasingly being felt today with 46 per cent of UK employees stating they often worry about their future financial position and 55 per cent reporting retirement security has become a more important issue for them over the last two or three years.
Concern over the sustainability of State benefits and worries about the adequacy of pension savings is driving a greater focus on saving for retirement. 64 per cent of UK employees think that the State pension will be much less generous by the time they retire and 64 per cent think the NHS and other medical services provided by the State will be worse.
“Despite the shift from DB to DC the number of employees’ reporting they will be reliant on their employer’s pension plan to provide for their retirement has grown,” says Jonathan Gardner, Senior Economist at Towers Watson. “Employers have retreated but people expect that governments are going to retreat even faster.”
With Government and employer-provided retirement benefits less generous it is clear that many people are not adequately prepared for retirement and are likely to work into old age.
The employment rate amongst the over 65s has almost doubled since 2001 and the impact of the transition from DB to DC will lead to further increases in the numbers working in old age, with those in DC schemes more likely to expect to work into their 70s than their peers in DB schemes. In the UK, 22 per cent of those who are members of a DC plan intend to work until 70 or later, compared with 10 per cent of those in a DB scheme.
“We have begun to see employers report a concern of the risks to them of workers reaching old age and not being able to retire,” says Mr Gardner.
A big issue is the potential for – “hidden pensioners”– employees who want to retire, but cannot afford to do so. The research shows that employees expecting to work into their 70s tend to be less healthy, more stressed and less engaged with their jobs, which could translate into declining productivity. Amongst pension scheme members expecting to retire aged 70 or later some 30 per cent are in fair or poor health, 51 per cent report high or above average work stress and 1-in-3 are disengaged.
Retirement ages are also higher for those scheme members that are financially struggling, with 41 per cent expecting to work to 70 or later, a big contrast with the 11 per cent of the unworried who plan to retire then. The impact of debt is biggest on Generation X where 58 per cent of those who are finding their debt difficult to manage have delayed their retirement in the last 2-3 years.
“With the ageing population employers may need to consider more flexible work arrangements and strategies to re-engage older workers if employees extend their working careers and productivity declines” says Mr Gardner.
An employer’s responsibility?
Employees seem to be in favour of employers taking an active role in their retirement, with 53 per cent supporting the idea that employers should actively encourage employees to save for retirement. How can employers respond to this demand?
We need to engage people at the right age, when they can still do something about it. If people knew that they weren’t saving enough then they might be willing to save a little more before it’s too late and working longer is the only option.
The solution is to provide relatively simple, targeted information about what employees need to do, which may for example include campaigns showing that if they pay a certain regular amount into their pension, how this would change the age at which they can retire. Peer to peer comparisons, where we tell them what everyone else in their age group is contributing, can also be an effective way of encouraging behaviour change.
Women report lower levels of confidence than men. Only 39 per cent of women aged 50 or more believe they have sufficient resources to last 25 years in retirement, compared with 55 per cent of men in the same age bracket.
Younger women were even less sure with 36 per cent in the 20-29 year range confident, compared with 54 per cent of 20-29 year old men.
Although more men are now opting for career breaks and the gender pay gap has moved up the agenda, it’s not surprising that uncertainty persists in young women in their twenties about how their future career prospects may affect their ability to save for retirement. However on the whole, although housing and debt are a greater priority for younger people, they are also savvier about the need to save for retirement, and may well demand more of their employers as a result.
Engaging employees to take control of retirement saving
“The interesting finding is that people want to have tools to help them plan,” adds Ms Evans. The best ones out there manage to connect with people about pensions in a meaningful, personalised way. For example, we focus on age when explaining retirement saving in our master trust LifeSight, because when we tested it with consumers it resonated as a more tangible concept. You want to know the age you will be able to afford to retire, and what you can do to influence that age.
The research shows that almost half of scheme members over 50s value online tools in helping them track their pension benefits while over two fifths said online tools are important to help them monitor when they can retire. This reliance will only increase in the future, with over half of those in their twenties valuing such tools. However, while there is widespread appreciation of these tools, the number of active users is limited which implies an opportunity is there for the taking.
The industry needs to create a consumer experience, similar to what they face elsewhere in their day-to-day life. The clunky old tools are no longer good enough. People are told they can now use their pension like a bank account and so they want features like a bank account. The benchmark is being raised quite quickly.