Nearly half (49 percent) of people with a defined contribution workplace pension have no idea what their pension pot is invested in, according to research from Wealth at Work, a financial education provider.
The survey of 2,000 employed adults revealed that 29 percent are unaware that their pension is even invested. More than a third (38 percent) said that they did not know that their pension offered them a choice of where to invest their pot, which rises to 44 percent for those aged 55 and over.
This general lack of pension understanding goes further as 30 percent said that they were unaware that if they didn’t decide what their pension is invested in their pension provider would make the choice for them by putting the money into the default investment fund.
ESG engagement
Of the respondents who had chosen where to invest their pension, 21 percent said that they have picked things based on their values and beliefs, which include environmental, social or religious beliefs.
Two fifths (40 percent) said they would increase their contributions if they knew their pension was investing in funds that aligned with their values and beliefs. This rises to almost half (48 percent) for younger workers aged 18 to 34.
Jonathan Watts-Lay, director at Wealth at Work, said: “It is widely recognised that people need to be more engaged with their pension savings and investing more for their retirement. So, it’s worrying that our research shows that many people don’t realise that a pension is an investment, or even that they have a choice over how their money is invested in their pension.
“Particularly concerning is that this worsens for those approaching retirement (age 55 plus), as at this point people need to consider how they plan to generate a retirement income (i.e. take it as cash, buy an annuity, go into drawdown or a combination of options) and ensure their pension investments or ‘glide path’ is aligned with this.”
He said it was vital for people to engage with their pensions as early as possible to be better prepared for their financial future.
“It’s really interesting to see that many said they would increase their pension contributions if they knew it was invested in funds that aligned with their values and beliefs, and this is despite the current cost of living challenges. This is especially appealing for younger workers, a cohort typically less engaged with their pensions,” he added.
As environmental, social and governance (ESG) interests have become more prevalent, more people want to align their pension investments with their values and beliefs. However, he said that the ESG category is broad and means different things to different people, so a one size fits all approach is not enough.
“There will be some people who care passionately about environmental issues and others will have religious beliefs to take into account when making decisions. Some might want to invest in companies that promote social cohesion, greater representation and diversity. It may be that others are just wanting to choose investments that are having a positive impact on the world. But simply knowing that pensions can be used to make a difference can be a powerful way to switch people on to better engage with their long-term savings.”
He added: “Many leading workplaces empower their employees with financial education and guidance via financial coaches to help them build understanding and engagement around their pensions and the options at-retirement.
“Our experience shows that interactive financial education workshops are far more engaging than passive information on a website or leaflet.”
