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Solutions to the UK’s biggest pension problems · On The Money

• 0:03
  Kyle Caldwell: Hello, and welcome to our latest episode of On The Money, a weekly podcast that covers investments and pension topics in a practical manner. In this episode, the focus is on some of the key findings from Interactive Investors market leading Great British Retirement survey. So our survey highlights the core challenges facing pension savers and outlines what we, our interactive investor, would like to see in terms of reforms to tackle some of the problems identified. So we're gonna focus on a handful of the key findings, but there's much more covered in the full report. So please do check it out, and I'll I'll include a link to the report in the description text of this podcast episode.
• 0:49
  One of the key members of the team who put a lot of time and dedication into compiling the report is joining me today, and that is Camilla Esmond, who is head of investor campaigns at Interact Investor. So, Camilla, to start off, could you give a very brief overview of how long the survey's been going for, how many people are polled, and why we do the survey.
• 1:12
  Camilla Edmund: Yeah. So thank you for having me. I'm really excited to be talking about this research today because, as you say, it is market leading. It's one of the biggest pension surveys of its kind, And it's around 8,000 respondents. So 5,000 of those are nationally representative.
• 1:28
  And then we have II customers who fill in the survey as well. So altogether, it's such a powerful barometer of the pension landscape in The UK. Every year, it's the seventh year we've done this now, seventh iteration of the report. And every year it has the same goal. So getting to the heart, as you say, of what's troubling pension savers in The UK.
• 1:49
  And there's loads of food for thought for the industry in here and for policymakers, but we also designed this to be actionable. So we want every individual, you know, saver and investor to be able to take at least one thing from this report that they can action to make them feel more in control of their financial future.
• 2:07
  Kyle Caldwell: So we're gonna firstly cover some of the findings that lay bare the retirement realities that many people are facing. So among the things found in the survey are that people are retiring later than never. The state pension is being heavily relied upon in retirement, and there's plenty of uncertainty regarding whether the amount you have in a pension when you retire, whether that's gonna last the course. So Camilla, over to you to run through those findings in more detail.
• 2:39
  Camilla Edmund: Yeah. So as you say, one of the core findings that really struck me was that four in ten retirees simply just don't know if their retirement savings are gonna last them. This is really concerning. Imagine having that looming over you, you know, over those years when you're trying to manage that money. That's a horrible feeling.
• 2:57
  So that really, really stood out. And as you say, people are working longer. So there are, of course, many reasons why people may, you know, choose to stay in work longer or to go back to work. But really, I think this is illustrative of this difficulty planning, this uncertainty about whether they'll be able to afford to retire. And so that was something, again, that really stood out.
• 3:20
  As you point out, there's a very high reliance on the state pension. So around half of retirees are depending on the state pension for their main source of income. That's really worrying because, obviously, the state pension can provide valuable source of income in retirement, but it alone is unlikely to be enough for a comfortable lifestyle.
• 3:39
  Kyle Caldwell: So those findings that you've just pointed out, Camilla, do make a very sober read and as well as retirees. I'll say they found the, you know, people who are, you know, decades, twenty, thirty years away from retirements, they also have lots of financial worries and concerns about whether they can retire and whether they're gonna have enough money to retire, and also uncertainty over at what age that they can retire. Yep. I think one of biggest problems people have is a a lack of confidence in the pension system. And what really doesn't help matters is frequent changes made to the pension system in terms of pension rules and taxes.
• 4:23
  They both undermine trust. And I think that uncertainty, it does deter a lot of people from becoming more engaged with their pensions Yeah. And putting more money away for later life. So Camilla, we've got some thoughts on how this situation can improve. Mhmm.
• 4:40
  So over to you to explain them.
• 4:42
  Camilla Edmund: Yeah. So as you say, consistency really needs to be key. We continue to say that pension tax needs to be left alone. Every year in the survey, it gets louder, that need for clarity so that people can plan because as it stands, with all the chopping and changing, people don't know what to do next. So fundamentally, we we continue to say that needs to happen.
• 5:04
  And especially as you say, it could have the opposite effect and make people not want to engage with their pension or even think about it altogether and think what's the point? And that's, yeah, the complete opposite of what we want. More specifically, we'd love to see the creation of a common national retirement income benchmark. So understandably, pension saving is not always gonna be top priority priority for everyone, you know, depending on your stage of life, and it will vary. But we need to meet people where they are and make it easier for people to track their progress because at the moment that's really, really difficult.
• 5:34
  So that will help people understand, you know, not just their balance, but where they are in relation to their stage of life and their goals and everything we just said in terms of, you know, the lifestyle that they want to have in retirement. So we would love, you know, the government, the regulators, the industry as a whole to agree on some common plain English benchmarking. So this would show the income that people might need for a minimum and a moderate and of comfortable retirement, you know, in today's money as well. And that would ideally be consistent across these key documentation, you know, pieces of documentation that we see for pensions. So whether it's your statement and then you're not just seeing your balance, you're also being able to benchmark.
• 6:16
  Pension dashboards, which and I think this is why it's so important to be talking about this now because that's coming down the pipeline. You know, we've got more of a timetable for that now and this is the opportunity to action some of these things because they could be visible there. You know, anywhere, you know, employer communications as well, there's so many opportunities. And we were conscious that that's a lot to to ask for, but it is, you know, the time to to talk about it, I think.
• 6:40
  Kyle Caldwell: And in terms of pension dashboards, I think the first idea of them was muted around a decade ago, because I remember writing about them. And I think by now in 2026, it would have been hoped that people would been launched in some form. However, that's not yet happened. There's been frequent delays over the years. However, it's a really important thing to get right.
• 7:02
  But when they are launched, it's gonna be really useful for people to see all of their pensions information in one place. Long gone are, you know, the days of a a job for life. I mean, most people have multiple different jobs throughout their working careers now. I think at the average is something like 11 or 12. So the ability to see lots of different pension pots in one place, and also get a forecast for the state pension, I think that'd be really helpful for people to engage and see whether or not they're on track for where they wanna be Yeah.
• 7:35
  In retirement. However, what I would say is that, you know, whether you're five, ten, or fifteen years away from retirement, it's not too late to supercharge your pension savings by open contributions, you know, increase your monthly contributions or putting in lump sums Mhmm. If, of course, you've got the means to do so. But it's also crucial to look onto the bonnet how your pension is invested and consider whether the the asset allocation and risk level is appropriate. And also consider, you know, if you know at this point that you're gonna keep your money invested throughout retirement rather than buying annuity.
• 8:16
  You're still gonna want the engine room of a pension portfolio to have plenty of exposure to growth producing investments, which is what equities or funds invested in shares provide as opposed to derisking the portfolio into bonds. However, the earlier you engage with a pension, the better. And on that front, we have a policy idea that we think could help give people like a gentle nudge towards becoming more engaged in the form of wake up packs at the age of 40. Yeah. Could you explain the idea that we have, Camilla?
• 8:52
  Camilla Edmund: Yeah. So as you say, it's improving consumer understanding as we've spoken about and we'll speak about more is fundamental, really, really key. But and helping people track their progress. But so is giving people that nudge in the first place. So at the moment, wake up packs are sent to age 50, and this is good, but we're arguing let's bring it forward as well.
• 9:13
  So let's send them earlier at age 40. And the idea is essentially just giving people more more time. So, you know, more time to strategise, to check their pension, to do basically everything you've just said, assess how it's invested, look at contributions, lots of things that we'll talk about a lot today. And ultimately, you know, time is a great asset with these things and, you know, there's for us, it feels like a bit of a no brainer to have those earlier.
• 9:39
  Kyle Caldwell: And the challenge at the sort of, like, midlife stage, which a category that I fall into Mhmm. Is that you you do have lots of competing priorities. You may be at the stage where you're, you know, you're raising and supporting a family. Mhmm. You you might be on the property ladder and have a big mortgage that you're trying to pay off.
• 9:58
  And as a result, pension saving, it can take more of a backseat at this point.
• 10:04
  Camilla Edmund: Yeah. So our forties, as we've been saying, can be a really important time to make a difference to our financial lives. You know, we associate it with time of our lives that could be, you know, our peak earning years. Interestingly as well, our broader data, so when you look at not just pensions, so self invested personal pensions in this case, because it's looking at our platform, but also ICE's as well. This age group, that kind of midlife group, tend to be our best performers of any other age group.
• 10:32
  So it shows that when this group are investing and staying invested, it's paying off and they're doing really well. But as you say, the reality is, you know, it's not that simple that life throws things our way, that we have all sorts of competing financial priorities at this time as well. So it's very thought provoking what came through in the survey on debt. And our survey shows that basically, rather than prioritising those longer term financial goals, this age group are increasingly using pension money to firefight today's costs and bills. So in our survey, almost half of Gen X told us they now carry unsecured debt, and this is up from around forty one percent the year before.
• 11:12
  And obviously, not all debt is necessarily bad, but the the reason it's relevant is because it's having a knock on impact on, you know, these longer financial goals and a lot of it being pensions. People are spending down their pensions before they even retire. So around 30% of Gen X told us that they use their 25% tax free lump sum to repay debt. And 18% told us that they spent it on daily living costs, which is really interesting. And, obviously, everything is so expensive at the moment.
• 11:43
  So it's very worrying because at the beginning of this podcast, we talked about how, you know, how many people aren't sure if their retirement savings are gonna last. And we can see why because a lot of them are having to spend this money before they even retire.
• 11:56
  Kyle Caldwell: And it's, of course, widely known that many people are not saving enough towards their retirement. And due to the way in which the pension system has changed versus history, And, you know, both myself and you were in defined contribution pension Yeah. In which the the value of the pension, the success of it is based on how the investments perform Mhmm. And also how much money we put into the pension, and also the employer contribution as well, as well as the valuable tax relief you receive. Mhmm.
• 12:29
  Whereas in the past, you know, older generations may have received a defined benefit or a so called final salary pension, which provides us a guaranteed retirement income for life based on your salary, age, and length of employment. And also with a defined benefit pension, you know, how the stock market performs does not impact that guaranteed income. Now two ways in which we think that younger people can be helped to try and save into a pension earlier and to save more is by automatically raising the minimum pension contributions under author enrollments gradually to 12%, and also extending the minimum age of author enrollments to age 18. Mhmm. So could you run through those in more detail?
• 13:19
  Camilla Edmund: Yeah. So as you say, you know, the the retirement landscape has changed so much. The onus is very much on us as individuals to save enough and as we've talked about a lot already today, that isn't that just isn't happening. And auto enrolment has been a great success story, but it can go further, we think. So, the first idea is around raising minimum pension contributions, but gradually, an emphasis on gradual, because, you know, there are so many cost pressures on employers, on employees, so this needs to be realistic, sustainable, and not put any other kind of pressure on that front.
• 13:55
  So, yeah, very gradual. But right now, the auto enrolment minimum sits at 8% of qualifying earnings. And we think it's time to look at this again and see if we can start moving towards 12%, as you say, gradually, maybe 1% a year, say, with an ambition of eventually maybe even increasing that further. So the second idea is extending auto enrolment down to age 18. So at the moment, it only kicks in around age 22.
• 14:23
  But the idea behind this is to just give a little bit more time if we can get people in investing into their pension from their very first pay packet if they are indeed starting work earlier. This gives, you know, sometimes decades longer for this money to grow and benefit from compounding. And obviously, it's an auto enrolment scheme, but people can still opt out. And I think this is why we still need that underpinning robust finance education framework to give people that context and and help people understand why these can be beneficial, but what choices they have.
• 14:57
  Kyle Caldwell: Well, as you mentioned, yeah, of course, you cannot doubt Yeah. Also enrollment. But if if you had that financial education and you're explaining concepts like, you know, investment compounds and and how that that's a real force for goods Especially earlier. Yeah. For the long term, then that'll help sort of people not opt out and Yeah.
• 15:15
  You know, I I just think, you say, yeah, that's that's the big hole that needs addressing financial education. And, you know, we've been banging the storm for a long time. Our interact investor, you know, we'd like to see financial literacy added to the national curriculum. We'd also like to see I think there has been improvements made in in the industry in terms of, like, reducing the amount of jargon. But I think it can go much further than is currently the case.
• 15:39
  Yeah. And also, I think, just trying to make the understanding about investments more engaging for people as well. I mean, I think that'll help improve confidence and also interest as well. Mhmm. And on a personal note, I'd like to see lots more sort of education around pension default funds, because the reality is it's a default fund.
• 16:01
  It doesn't mean that it's a it's necessarily gonna be appropriate for you based on your age and your risk level. I mean, I'm an advantage because I wear from this industry. When I was put into a pension default funds before I chose where I was gonna invest my pension, it had 60% in shares, 40% in bonds. I was aged 22, 23. I don't think I need to have that much exposure to bonds at that age.
• 16:26
  And but, you know, the reality is, you know, a lot of people don't engage with the pension. They leave it in the default funds, and their money could be working a lot harder for them, and it could be invested in a more adventurous manner, particularly in your twenties and thirties.
• 16:41
  Camilla Edmund: Yeah. Absolutely. And I'm so glad that we're seeing a lot more noise on financial education at the moment. As you say, it's something that II has been so vocal on for such a long time. And there's not only a real clear need for it, but there's also a real appetite for it across generations.
• 16:58
  You know, I should add that this survey is across multiple generations. We're not just looking at people who are near retirement. We're also looking at some some real young savers as well, at the beginning of their investment journey and and savings journey. So, you know, it's loud and clear across across ages that people want to to learn. And all of those ideas that I've just spoken about that we've both, you know, outlined, as I said, they need to be underpinned by this framework and this yeah.
• 17:26
  This education framework so that people can understand why it's relevant and have that context. Financial jargon just put such an unnecessary block to people engaging with their with their investments. So it's come a long way and we've really, I think, done a lot in that space as a business, but it's got a long way to go. So on default funds specifically, it's worth saying that these are designed for quite a broad range of savers. So as you say, Kyle, really, you need to understand whether it serves you and your stage of life.
• 17:56
  Ideally, your pension can adapt with you. So, you know, whether you are near retirement and your strategy needs to adapt and say de risk, or whether you are younger, as you've said, and you can afford to take on a bit more risk, you need to be able to reflect that in in your investments. And a lot of the problem at the moment is that people don't know that they're in these default funds and they they don't know what it means for them and how it aligns with what they need. So we would love to see more education on this and, you know, I know it's something that we have written about but I would really encourage people to try and see how their fund is invested. And if you're not sure, if it's not clear, ask the questions.
• 18:34
  Kyle Caldwell: Another big pension problem that we highlight in the report is the agenda gap. Now while it is widely known that this is a problem, the findings from the survey really do show how alarming it is.
• 18:48
  Camilla Edmund: Yeah. It's incredibly alarming, and it's very stubborn as well. So the gender investment gap more broadly is an issue, but pensions are such a key driver of it. And, you know, there's a whole chapter on this in the report. So, you know, I definitely encourage people to read it.
• 19:04
  But in a nutshell, as it stands, men on average, by the time they reach retirement, have around a £130,000 more than women. So women are being left very financially exposed and this is, you know, very concerning. So the gap is well researched, you know, it comes down to lots of structural barriers when it comes to women's ability to build wealth, career gaps and the so called motherhood penalty, the, you know, the historic pay gap as well. There are so many things and you could always do a whole conversation just on that. But the frustrating thing about it is I think it feels very out of control for a lot of people.
• 19:40
  These are all factors we can't really do too much about individually. But the good news is there are things that women can do to to plug these gaps and take matters into their own hands. So everything we've just spoken about, you know, looking first of all, making people aware of this data and this is why I'm so passionate about sharing it because I hope this gets women talking. I hope that women read this and and share some of the findings with their friends and, you know, you have to be aware of the problem and get people talking to to really change things. Especially if you're younger as well and you've got all that time on your side.
• 20:15
  But, you know, it's worth looking at whether you can do some of the things we talked about. So, obviously, do what's right for you and what's affordable at that time and what makes sense. But have a look at your contributions, you know, could you afford to put a little bit more in? Have a look at how your pension is invested. One of the great things you can do as well, which doesn't take any new money or any extra funding, is to round up lost or missed pensions.
• 20:40
  So, as you said earlier, lots of us have had multiple jobs and it's easy to lose track of old pensions. So something that can make you feel more in control is to track them down, which you can do via the government tracing service or you can contact old employers as well to find old pensions. And then from that, you know exactly what you have. And then you can, you know, potentially look at bringing them together or consolidating them. And then you've got one pot that you can track in terms of performance a bit better, how it's vested, as we've said, fees and things like that.
• 21:13
  And, you know, that could be a really effective thing to do as well. But obviously, you know, don't lose any valuable guarantees in the process. And also, look at your financial toolkit more broadly because our retirement and our future pots are more than just our pensions. They kind of have to be because of, you know, everything we've talked about. So use other tax efficient vehicles as well to your advantage.
• 21:36
  So whether that's an ISA, for example, to bolster your pension savings. And the great news is, again, the consistency is key and you don't have to be putting away large lump sums. If you are consistently putting away small amounts too, especially over a long time frame, then it can really pay off. So we have lots of educational tools and insights on something called the Women's Wealth and Investing Hub, which is on the Interactive Investor website. So if this resonates with you, if this data resonates or, you know, a partner, a sister or a mum, I'd really encourage you to and encourage them to have a look at this hub because it's full of articles to talk about some of these steps in more detail.
• 22:15
  And you can also explore, you know, the gap more broadly, why it exists, why it hasn't changed, what needs to be done. There's lots of great data from what women are doing with their money as well, which can help be a really valuable source of inspiration. So, yes, hopefully, that's something that women can take away from this.
• 22:31
  Kyle Caldwell: And as you outlined, Camilla, the fact that, you know, women take time out of work to look after children, and there's greater tendency for women to take more time than men out of work to look after loved ones Mhmm. That has a huge impact on pension wealth later on Yeah. Due to the fact that there's less money going into a pension Yeah. At that point. Yeah.
• 22:52
  And there's less money in the pot to compound over time. So if you're taking time out of work in your twenties or thirties, and we know that with investment compounds and the earlier you invest, the better Yep. If that money is not being put in at that point, then it's not gonna work as hard for you.
• 23:08
  Camilla Edmund: Yeah. Exactly. Yeah. So I'd really encourage young women, especially to have a look at some of this data and have a look at some of these tools and insights because hopefully, that will kind of get them excited about thinking about these things early, which can make a real difference and kind of offset these gaps that sometimes pop up because of these, you know, these structural challenges.
• 23:28
  Kyle Caldwell: And in terms of how men invest versus women Mhmm. Our data shows there's actually a lot of similarities rather than differences?
• 23:37
  Camilla Edmund: Yep. So many similarities. And so, you know, this isn't just pensions either. When you look at our broader data across ISAs and self invested personal pensions on II, men and women are both investing successfully over the long term. I think this is really encouraging.
• 23:53
  So, you know, you you can basically pay spot the difference. There's minimal differences. But men tend to have a slightly higher weighting to direct equities and women have a very slightly higher weighting to collected more broadly, but primarily investment trusts. But really, you know, it's very, very similar and this helps us move away from some of these unhelpful generalisations when we talk about how men and women behave when it comes to money, attitudes to risk, and instead focus on what's actually happening. That both men and women are investing, they're building well balanced portfolios for the long term.
• 24:31
  They are seeing that portfolio growth over the long term. And the more we can share that, especially, you know, for, as we've just said, with women who are starting out maybe and or want to bolster their investments, they can learn from the success of what women are doing and seeing that actually some of it isn't complicated. It's just going back to those fundamentals around diversifying and staying in in the game, just staying invested. That will help inspire more, hopefully.
• 24:57
  Kyle Caldwell: And just before we conclude this episode, we've today looked at pension pitfalls and highlighted some potential remedies. However, we haven't focused on some of the positive aspects that we found in the report. Mhmm. So let's end on a more cheery note, Camilla. So over to you to pick out the the positive aspects that we found in the survey.
• 25:19
  Camilla Edmund: So, yes, there are definitely reasons to end on a cheery note because there are positives coming through in the data as well. So broadly, we can see that investors are getting control by doing some of these things that we've talked about. So consolidating pensions, for example, has gone up year on year. That's risen again. People are getting more fee savvy as well.
• 25:40
  So that's brilliant because pension fees are notoriously quite difficult for consumers to understand. So I think it's great that savers are looking under the bonnet of what they're being charged because that can make a huge difference in your pot if it's eating into it over time. And I think there are some really encouraging behaviours coming through from younger generations as well. So millennials and Gen Z, they are talking about money and investments and pensions a lot earlier than previous generations did. So that's hugely encouraging because that's all in turn going to help drive more engagement and awareness earlier, as we've said.
• 26:15
  So, you know, hopefully we see more of this in future surveys. And thank you to everyone who filled in the survey as well because we really appreciate the insights. Without it, we wouldn't be able to pull such a meaningful report together. And hopefully, we'll see the policy landscape begin to adapt. But ultimately, I hope that there's at least one thing that a saver and investor can take away from this report and action tomorrow.
• 26:39
  Kyle Caldwell: Camilla, thank you for coming on the podcast to run through some of the key findings.
• 26:43
  Camilla Edmund: Thank you for having me.
• 26:45
  Kyle Caldwell: And thank you for listening to this episode of On The Money. As ever, we love to hear from listeners. If you've got an idea of a topic you'd like us to cover in a future episode, then please do get in touch by emailing otm@ii.co.uk. As ever, you can find lots of investment inspiration on the Interactive Investor website, ii.co.uk. And the podcast will be back again next Thursday.