A ‘pension health check’ should be introduced alongside pension dashboards to help pension savers prepare more effectively for retirement, says the Social Market Foundation.
In a new report, the SMF warned that widespread disengagement with pensions is contributing to the UK’s retirement saving crisis.
Nearly one in 10 (7%) of those in full-time employment with a pension had never checked their total pension savings, while 6% couldn’t say and a further 14% had not done so for a year or more.
Research from the Financial Conduct Authority found just under a quarter (24%) of people in Britain currently contributing to a defined contribution pension reported being ‘highly engaged’ with their pension, while a third said they are not confident they are able to manage their retirement savings.
The SMF welcomed the development of pensions dashboards in helping to inform pension savers and encourage pension engagement but cautioned that individuals may not have a clear understanding of what a given retirement income means for their circumstances. In addition, people who are on track for an inadequate retirement income might lack the knowledge or confidence to do what is needed to improve their prospects.
According to the Institute for Fiscal Studies, between 30% and 40% of private sector employees who are saving into a defined contribution pension are on course to retire on inadequate incomes.
To overcome this, the SMF said the creation of a pensions dashboard health check scheme, whereby personalised guidance is provided to individuals who have used a dashboard and want further support with retirement planning and pension management, would help to maximise the potential of the dashboards.
Health checks would focus on explaining the value of pension saving, what an individual’s dashboard means for them and the best ways in which they can improve their retirement prospects.
The report stated: “The combination of the dashboard and the personalised guidance is more likely to make a bigger difference to a larger proportion of pension savers and their ability to achieve their retirement goals than the dashboards alone. Pension health checks can direct those who need or want more extensive and bespoke support towards regulated financial advice.”
In order to integrate pension health checks into the pension dashboard programmes, the SMF urged the Government to expand the scope of MoneyHelper to provide health checks to users of its dashboard.
It also recommends the Government encourage commercial dashboard providers to offer pension health checks to customers using their dashboards and require employers to encourage their employees to view their pensions dashboard and utilise the health check services.
Anusha Mittal, managing director, individual life and pensions at M&G, said: “We must seize the introduction of the pensions dashboard as a critical opportunity to help people feel fully confident about their savings and pensions throughout their lives. That’s why this report is right to shine a spotlight on the importance of launching a pension health check in the UK. It’s the first step toward building awareness, clarity and action.”
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