Major new research on private sector pensions from the CIPD and BlackRock

PENSIONS

Major new research on private sector pensions from the CIPD and BlackRock

Fewer than half of private sector employees regard pensions as the best way to save for retirement, according to a study carried out by the Chartered Institute of Personnel and Development and BlackRock. This is in contrast to the employers’ attitude that pension provision is a core part of the reward package. As one employer said: “We want to be an employer of choice, and therefore we recognise the need to have a good pension scheme”.

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The purpose of the research was to shed light on attitudes to workplace pensions among employers and employees as the shift from defined benefit (DB) to defined contribution (DC) pensions means that the majority of private sector employees can no longer count on a paternalistic employer to ensure they have enough to live on in their old age.

Key survey results

• Only 28% of private sector employees know how much they should be saving for a comfortable retirement. More than half (56%) are worried that they will not have enough.
  
• While most private sector workers (61%) believe that investing for retirement is their personal responsibility, this has not led to a more active and engaged approach towards saving.
  
• Although the majority of employees are aware they might not be saving enough, fewer than half (48%) have reviewed their contribution levels within the last two years. Instead, many are simply resigned to postponing their retirement - 47% expect to have to work longer than anticipated five years ago.
  
• Affordability is a factor in this overall lack of engagement: 31% of employees not saving into a pension cited financial constraints as a major reason.
  
• The pervasive scepticism towards pensions means that workers not saving into a company scheme are looking to a wide range of other sources of funding, including inheritance (19%), downsizing or selling property (21%), the State (14%) and support from family and friends (6%). Sadly, 27% are expecting to get another job after retiring to supplement their income.
  

The purpose of the research was to shed light on attitudes to workplace pensions among employers and employees as the shift from defined benefit (DB) to defined contribution (DC) pensions means that the majority of private sector employees can no longer count on a paternalistic employer to ensure they have enough to live on in their old age.

A final word

"This research clearly shows that employees and employers alike are sleepwalking into a potential retirement disaster. Many employees are planning to rely on downsizing their home, family handouts or government to support them in retirement, while many employers will face the prospect of trying to motivate an older workforce who are simply soldiering along because they cannot afford to retire. While employers are no longer responsible for the retirement planning of their employees, it makes sense for them to educate their staff on the importance of saving into a pension scheme. However, employers can't do this on their own. They need government support to help empower employees to make informed choices on the options available." - Charles Cotton, CIPD Chief Reward Adviser.

“Pensions are too vital for anyone to consign them to the ‘Too Difficult’ pile. Worryingly, our research shows that many employees do just that, fearful of something they inadequately understand, which seems expensive, inflexible and is wrapped in jargon. The good news is that there are measures to deal with this, available now, or soon to be introduced. Employees can already use interactive online tools to gauge what they’ll need in retirement, and what to save to achieve that. The ‘save more tomorrow’ approach – where contributions increase as the employee’s salary grows - works well in the US and is gaining traction here.

“If an individual were permitted to take a loan from their pension pot, to be paid back with interest, pensions would become more flexible. They would also seem more flexible, an important psychological benefit for employees, since the take up rate for such loans in the US was very low, even during the economic turbulence of 2008.” - Steve Rumbles, Head of UK DC Pensions at BlackRock.

Want to know more?

Title: Business Case for Pensions, Chartered Institute of Personnel and Development in partnership with BlackRock, October 2009.

Survey details: Research was conducted in two parts: an employee survey of 840 private sector workers and an employer survey based on 61 in-depth telephone interviews and case studies with employers from a broad cross-section of organisations.

Availability: The full synopsis and a more in-depth report on the findings relating to the HR industry are available to download from the CIPD web site at www.cipd.co.uk/businesscaseforpensions.

The Chartered Institute of Personnel and Development (CIPD) is “Europe’s largest HR and development professional body with over 135,000 members, supporting and developing those responsible for the management and development of people within organisations”. To find out more visit www.cipd.co.uk.

BlackRock is a “premier provider of global investment management, risk management and advisory services to institutional and retail clients around the world”. For additional information, visit the firm's web site at www.blackrock.com.