Free pension ‘health checks’ could aid UK savers’ retirement plans
Pension savers should be offered free “health checks” to prevent a possible retirement savings crisis, a leading think tank has called.
Savings and investment company M&G, as well as the Social Market Foundation (SMF), propose integrating these checks directly into pension dashboards.
This will allow individuals to access a free, personalized guidance session when viewing their retirement information.
Plans are already afoot for retirement dashboards designed to consolidate all of an individual’s retirement savings into a single view and provide a clearer overview of their total retirement savings.
This is crucial as many people accumulate multiple pots from various jobs, making it difficult to track their overall value.
But the SMF argues that dashboards alone cannot solve widespread low levels of pension participation and understanding.
The potential of dashboards could be wasted if savers who are off track to their desired retirement lack the confidence or knowledge to take action to improve their financial outlook, the think tank warns.
SMF analysis of an Opinium survey of 3,000 people across the UK by the M&G showed that two fifths (40 per cent) of full-time workers receiving a pension are unaware of how much their employer contributes to their pension fund.
More than two-fifths (43 per cent) of full-time workers receiving a pension have never changed their contribution levels, the survey found.
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The research conducted in December also revealed that many workers did not combine their pensions. Consolidation may bring some benefits, such as the potential for lower wages, but some pensions may have certain advantages; Therefore, consolidation decisions should be weighed carefully.
Many workers save in defined contribution (DC) pensions, where the saver bears the risk of how much income they will receive in retirement, based on factors such as pension contributions and the performance of investments.
Defined benefit (DB) pensions, which promise savers a certain level of income in retirement relative to their salary, have become even more scarce.
The report argues that the risk of inadequate pension savings goes beyond the consequences for people with low pension savings, with the potential to have significant additional consequences for the welfare state in the face of an aging society and resulting rising state pension liabilities.
SMF and M&G argued that MoneyHelper, run by the Government-backed Money and Pensions Service (MaPS), could use its neutral platform to offer the first version of the health check service before commercial dashboard providers start offering health checks of their own.
Senior SMF researcher Richard Hyde said: “Pensions dashboards are a welcome step forward, but information alone will not solve the problem. “Millions of people are still undersaving for retirement and many have little or no interest in their pensions.
“Without follow-up support, there is a real risk that people will see worrying numbers and not know what to do next. A pension dashboard health check, which offers additional personalized guidance, can help turn awareness into action.”
Anusha Mittal, managing director of personal life and savings at M&G, said: “The data and research is clear – we face a retirement and savings crisis fueled by low levels of participation and underpinned by low financial confidence.
“Collective action is needed now.
“Pensions dashboards will have an important role but they need to be reinforced with regular retirement health checks that provide practical and accessible guidance.
“The good news is that, with the right help, a checkup can turn passive awareness into safe decisions for the future.”
Zoe Burns-Shore, Executive Director of Customer Services at Money and Pensions Service, said: “As part of our work to develop and test the MoneyHelper pensions dashboard, we are exploring how we can point people to the free, impartial guidance we offer at MoneyHelper to help them get the most out of their pensions.”
Helen Morrissey, head of pensions analysis at Hargreaves Lansdown, said:
“The key challenge is that people have pensions spread across different providers and have no idea how much money they have in total.
“Dashboards will help here but more importantly people don’t know what kind of income this pension pot will actually give them in retirement.
“Health checks can really help people understand this, and you can also get some clarity using some of the online tools available.”
