LGIM research finds pension tax relief awareness gap
Poll shows retirement savings matter to people, but they struggle to find extra income to put away.
Retirement is firmly on people’s minds, according to new research from Legal & General Investment Management (LGIM). The research, released today to mark Pension Awareness Day, finds the biggest boost to getting the nation saving for retirement would be to raise awareness of the benefits of tax relief.
The research, undertaken in collaboration with Boring Money, investigates four tribes of people usually criticised for not saving enough. It finds that retirement matters for ’Rebellious Renters‘ trying to save for their first property, ’Tired Parents‘ juggling numerous demands, ’Ladies Losing Out‘ prioritising happiness in later working life, and the ’Sandwich Man‘ caught between providing financial support for elderly parents and his own adult children.
The research shows 65% of ‘Rebellious Renters’ either have not heard of the current system of pension tax relief or do not understand it. However, more than a quarter (27%) point to the statement "If you save £80 into a pension, the Government pays in £20 for free" as most likely to motivate them to save. Over a fifth of ‘Tired Parents’ (25%), ‘Ladies Losing Out’ (21%) and ‘Sandwich Man’ (22%) tribes also say this statement is most likely to convince them to save more.
Mind the (gender) gap
The research also reveals that awareness of pensions diverges between genders across all four tribes. The difference is particularly stark for ‘Tired Parents’, with 42% of male respondents both having a workplace pension and knowing how much is in it, compared to just 22% for females.
Among ‘Rebellious Renters’, 30% of men have a workplace pension and know how much is in it, compared to 20% of women; similarly, nearly half (46%) of the ‘Sandwich Man’ tribe have a workplace pension and know how much is in it, versus just a third (33%) of ‘Ladies Losing Out’. While these differences can be partially explained by the fact that a lower number of women have a workplace arrangement (78% versus 61%), the difference remains significant.
Polling almost 5,000 consumers, the research also finds that each group is more likely to continue to save, or save more, into a private pension than a stocks and shares ISA. Overall, half of respondents say they are likely to save or continue to save into a private pension, compared to a fifth (21%) who would consider a stocks and shares ISA.
For those people who are not saving, most are not doing so because they feel they do not have enough money to save. ‘Ladies Losing Out’ is the tribe most likely not to be saving for retirement. Almost half of respondents in this tribe (48%) say they are unlikely to save into a private pension and a third (34%) do not have a workplace pension.
Emma Douglas, head of DC at LGIM (photo, top-right), says: “Whilst it is encouraging to see that saving for retirement is important for each of these groups, we now need to motivate people to become more active about doing so. As an industry, we also need to do a better job of raising awareness about the benefits of pension tax relief.”
“Our survey found that 27% of ’Rebellious Renters‘ would like an income of over £20,000 for a comfortable retirement. Factoring in the full level single-tier state pension*, they would need to save at least £200 a month** in combined contributions from employer and employee to meet this goal.”
Holly Mackay, founder and CEO at Boring Money, says: “Surely tax relief is one of the great benefits of a pension, yet all our focus groups and consumer research tell us that this remains poorly understood across all age brackets. Although we are firm advocates of talking to financial tribes about their particular stages in life, we can see that this is one message which resonates loud and clear across all segments, and one we think the industry should make clearer.”
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Notes to editors:
** Based on achieving a £240,000 pot at age 65 for someone starting at age 30, saving £216 a month, assuming a 5% annual return. A £240,000 pot would buy a gross income stream of £11,000, assuming an annuity rate of 5%. Added to the state pension, this would lead to the gross income stream of £20,000.
About the research
YouGov surveyed 5,000 individuals and conducted eight focus sessions to identify their attitudes to financial planning. Fieldwork was undertaken from 20th - 26th July 2016. The survey was carried out online.
The four tribes surveyed include:
Rebellious Renters are in their 20s and 30s. They are renting with dreams of one day being on the property ladder. How they will get there though, they have no idea. Whilst a Rebellious Renter works full time, their money is invested more in their shopping habits than their property aspirations. They are open to saving into a private pension, but they don’t have enough knowledge to take the bull by its horns just yet. After all, retirement seems decades away, whilst a house is around the corner.
Ladies Losing Out are women aged 40-59 who know what they want. Whilst they might be saving for holidays and gifts for family and friends, these Ladies need to learn to put themselves first. A staggering 34% do not have a workplace pension, with even more women saying they were unlikely to saving into a private pension. These Ladies are making sure everyone else is not losing out, whilst sacrificing their own financial future.
A Tired Parent can be found in their 30s and 40s, cold cup of coffee in hand resenting the children’s programme soundtrack playing in the background of the bombsite formally known as their living room. Long gone are the days of fancy meals and champagne. Here comes the time of saving for holidays, retirement and tuition fees. They don’t have time for finances, but know that they are important.
Sandwich Man is in his 40s and 50s. He has ageing parents and ageing kids! His parents are getting frailer and he’s worried about the next 10 years for them. At the same time his child