Why pensions engagement matters

A concerted effort is needed to explain the  pensions outlook for many workers and to prepare them for old age.

Pensioner's hands holding wallet open


Pension policy is complicated. Many people have multiple pension pots due to job changes. There are different types of pensions – state pension schemes or, if you go private, defined benefit or defined contribution schemes.  You can choose to draw your pension early if you wish to and you can do so in a variety of ways, from buying an annuity to taking a cash lump sum.

It can be very confusing and many people are just so focused on getting through every working week that they don’t have a lot of time to gen up on it. Taking time out for caring responsibilities complicates things further, although you can top up your pension later, if you earn enough. It’s not surprising that a recent workingwise.co.uk survey of women found 58% don’t understand their pensions.

Yet it’s never been more important to understand your finances as you get older, given the state pension age is rising, alongside chronic health problems, and many of the generations under 50 are still renting and have insecure incomes.


So it’s vital that the pensions industry does all it can to engage better with people about their pensions. A recent report from The Pensions Policy Institute (PPI) looks at what effective pensions engagement might look like. It says: “Supporting people to make informed active choices that lead to positive retirement outcomes will require a substantial amount of work, and achievable targets should take into account the starting point of currently low levels of engagement.”

It highlights how technological advancements could represent an opportunity for innovation in engagement. It calls for greater collaboration across the pensions industry and beyond to develop innovative solutions to the engagement
challenge. That engagement needs to be tailored to people who face significantly different circumstances and different levels of financial literacy.

The report calls for clear communication and better data when it comes to engagement as well as a standardised method for measuring engagement. And for those who are unlikely to engage, it says appropriately designed defaults, rules of thumb and safety nets may be needed. The pensions industry has been calling for some time, for instance, for auto-enrollment thresholds to be lowered.

Another proposal is for a designated taskforce or working group for engagement to bring together key stakeholders from across government and industry in order to build consensus and develop solutions to the engagement challenge.

A collaborative approach across the board, from employers to Government, is clearly needed – and urgently – if the next generations are to be able to retire. There is much fear around about pensions and old age among those in their 40s and early 50s, with many fearing they may never be able to retire. The workingwise.co.uk survey found half of women feel they will need to keep working beyond retirement to make ends meet. That survey was in 2022 before the present cost of living crisis which has led to many cutting their pensions payments. The long-term impact is hard to forecast.


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