Savers underestimate the impact that the coronavirus crisis could have on their financial wellbeing, according to a new survey, leading to calls for providers to communicate reassuringly with the minority of members that engage in times of stress.
A study of UK savers’ attitudes by State Street Global Advisors found that the majority think the impact of Covid-19 on their finances will last less than a year. Just 12 per cent of respondents thought the impact would last three years or more, despite the fact that redundancies and diminished contributions could have a lasting effect on adequacy.
SSGA is yet to model the fallout of lost contributions and a cash squeeze resulting from job losses, but its survey did find that almost a third of savers report having experienced a worsening of their situation since lockdown in March.
I think we will see redundancies. The furlough scheme was about responding to a very rapidly evolving crisis... but there’s a medium-term adjustment as businesses respond to the new condition
Alistair Byrne, SSGA
Alistair Byrne, managing director and head of Emea pensions and retirement strategy at SSGA, suggested that some of the 42 per cent who said their situation had not changed may find they have been overly optimistic, as the government’s furlough scheme is wound down.
Twenty-seven per cent of workers have been furloughed at some point, according to the Office for National Statistics, while less than 1 per cent had been made redundant between March 23 and April 5.
“I think we will see redundancies. The furlough scheme was about responding to a very rapidly evolving crisis... but there’s a medium-term adjustment as businesses respond to the new conditions,” Mr Byrne said.
Minority of savers concerned
Fortunately, few savers appear to have been moved to make pension changes as a result of this uncertainty. While 24 per cent of people have increased their short-term savings and 14 per cent have reduced it, just 13 per cent of people have made any changes to retirement savings.
Further positive behaviours were found in savers’ views on investments, with 60 per cent believing now is a good time to buy assets, and only 5 per cent feeling they should sell out into lower-risk investments.
For the minority that do engage with their pensions — 13 per cent said they were checking their balance more regularly — Mr Byrne said providers may want to think about how they communicate short-term losses to members.
“What other messages are we giving savers at that point, are we just giving them the numbers?” he asked, suggesting that communications might try to emphasise that “you’re a long-term investor, your default’s well diversified, don’t panic”.
Interestingly, Covid-19 was not to blame for savers’ persistently low level of confidence that they will be able to retire when they would otherwise plan to stop working.
Fifty-one per cent rated their feelings about their retirement below “somewhat optimistic”, although 73 per cent said this was not to do with the pandemic, citing cash squeezes, uncertainty about their plans, and the complexity of retirement savings as more prominent issues.
Providers monitoring member behaviour
While inertia has thus far carried savers calmly through the crisis, providers are on the lookout for a change in behaviour.
Phil Brown, the director of policy at The People’s Pension, said: “Throughout this uncertain time, it’s been encouraging to see the vast majority of savers have continued to save into their workplace pension, not least due to the Government’s job retention scheme.
“As the situation continues, and the retention scheme ends, we will continue to monitor the impact on our customers, ensuring we answer their questions and continue providing relevant support, guidance and information as the situation develops.”
Eleanor Levy, director of communications and marketing at Now Pensions, said that the master trust was trying to refocus member minds on the advantages of pensions: "Our main message to members throughout the crisis has been one of reassurance: 'keep calm and carry on'. It’s crucial to remember that pensions are long-term, tax-advantaged savings plans.
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She said that members should continue saving as before the crisis if circumstances allow, pointing to the support offered by the Coronavirus Job Retention Scheme. Now Pensions plans to launch a new communications round coinciding with an upcoming re-enrolment date, reminding previous opt-outs of the benefits of saving.
"Investment markets have been on a rollercoaster ride, but a lot of us have lived through similar times before – at least as far as the investment markets are concerned – and things have gotten better already compared to the early days of lockdown," Ms Levy continued. "If you’re young, you’ve got time on your side. And if you’re getting close to the age you plan to take your pension fund, we will already be protecting the value of your fund to a large extent by moving you into investments with less exposure to the market highs and lows."
