Recent research from Schroders Personal Wealth has revealed that only 25% of men and 11% of women feel “very confident” about their retirement savings. As the UK pensions landscape continues its evolution from the certainty of defined benefits to the flexibility of defined contributions, members are clearly going to need more support on their pension saving journey. This means improving and promoting pensions engagement is going to become increasingly critical to both employers and trustees.

What are the challenges with member engagement?

In 2020, the Office of National Statistics found that while automatic enrolment (“AE”) has been successful in increasing the number of people who are saving for their retirement, there has not been a similar increase in the amount of people engaging with their pensions. However, this should not be particularly surprising considering that AE was designed to combat pension saving inertia by systematically enrolling individuals into pension schemes without the need for any action on their behalf.

The DWP has been grappling with the issue of pensions engagement for some time and published its research and analysis in 2023. The report found that members’ attitudes to pensions are characterised by “detachment, fear and complacency” which, unsurprisingly, act as significant obstacles to engagement.

Subsequent research undertaken by the DWP in 2024 found that a number of behavioural barriers exist which prevent members engaging with pensions – in particular, “present bias” and “perceived psychological distance”. Present bias occurs where individuals give stronger weight to payoffs that appear closer to the present time than larger payoffs in the future. Later life events such as retirement tend to be perceived by individuals as so psychologically distant that they are generally thought about in more abstract and less proactive terms. Essentially, where an event is more proximate and definitive, individuals are more likely to take action.

The problem for pensions is compounded by their complexity and the level of financial literacy among scheme memberships. According to Wealthify, almost three-quarters of UK adults fall below the ‘financial literacy benchmark’ set by the Centre for Economics and Business Research. Despite this, research by Royal London recently revealed that only 39 per cent of UK adults aged over 50 sought advice from a financial adviser before taking money out of their pension.

What actions can be taken to support members?

As we move further into the defined contribution sphere, trustees and employers are going to have to find ways to both improve member engagement and to help members better understand decisions about their pensions.

The DWP’s view is that pensions education could improve with more targeted information and support from trustees, providers and employers. Simplified pensions information from the government and pension education in schools were also considered important. According to its research the following could help motivate individuals to engage with their pension:

• ability to interpret what information about their pension meant for their future and what impact making changes could have;
• ability to influence their pension outcomes;
• understanding the benefits of engagement; and
• ability to view information about their pension easily.

These themes tie in with the Pension Regulator’s Code of Practice (which states that communications should be accurate, clear, concise, relevant and in plain English) and regulatory requirements on DC auto-enrolment schemes to issue “simpler annual benefit statements” to their memberships. The advent of the Pensions Dashboards should enable members to view information about their pension savings much more easily (though it is currently unclear when they will become publicly available).

These are good foundations to build upon, but as an industry, there is still more to do.

Further steps that trustees could take include:

• considering future opportunities to provide engagement prompts for their members. For example, the Money and Pensions Service has identified that life events, such as the start of a new job, a pay rise or moving house, can be used effectively to encourage members to consider their pension saving;
• directing members to the PLSA’s ‘Retirement Living Standards’ website which provides tangible examples of what retirement could look like depending on a member’s expected income; and
• providing more signposting in communications about obtaining independent financial advice about pension savings.

From an employer perspective, the DWP has found that 83% of employees value their pension contributions as part of their current benefits package. So, increasing communication about the benefits of having a workplace pension and taking more opportunities to remind staff about existing pension benefits could also be key to boosting engagement.

While the challenge of engaging with individuals about their pensions will continue to evolve, Trustees and employers should take stock of their current approach and consider whether they could do more to support their memberships.