New NEST research exposes gulf between traditional approaches to defined contribution pensions and consumer expectations

As the government debates new pension arrangements to encourage greater certainty for savers, new research published by NEST shows that pension providers must seek to understand the root causes of savers’ concerns and tailor products and communications accordingly in order to build trust and confidence in pension saving.

Improving consumer confidence in saving for retirement unpicks what lies behind consumers’ attitudes to pensions, their appetite for greater certainty of outcome and what they are and are not prepared to trade off to achieve it. It also explores how an understanding of savers’ fears and expectations can help providers develop communications that mitigate potentially harmful emotional responses to risk and investment. Through this understanding providers can help savers achieve healthier outcomes and design products that better meet their needs.

Tim Jones, chief executive of NEST, says:

‘Automatic enrolment continues to gain momentum with over 3 million more people saving for their retirement as a result. As an industry we are increasingly challenged with meeting the needs of this new and growing generation of savers and developing products that are aligned with what they want and need. Our research suggests that a key missing element is how we bring this new generation into a conversation that has previously excluded them.

‘The new freedoms announced in the Budget have reaffirmed the importance of communicating effectively with members, encouraging better decisions and designing products that better meet savers’ needs. From next year the choices available to savers broaden considerably and the need for providers to reflect this is one the industry as a whole is investigating right now. To do this successfully we must understand consumers’ anxieties, aspirations and expectations; and design and communicate products in ways that are meaningful to them.

‘As an industry we need to find innovative ways of providing greater certainty for savers, but without high charges and without foregoing inflation-beating growth. We also need to find ways to help consumers feel they are at the heart of a debate that is about helping them achieve their retirement goals.

‘Improving consumer confidence in saving for retirement explores what consumers think and feel about pensions, investment and long term saving, providing insight into how we may not only provide improved product solutions, but also influence their attitudes and behaviour to support better outcomes for all.

‘We hope publishing these findings will help us, and others, advance design, engagement and innovation to instil more trust and faith among the millions of new pension savers automatic enrolment is creating.’

The report’s key findings are:

• Consumers feel ‘disconnected’ from pension schemes
• Historic disengagement shouldn’t be interpreted as indifference. Consumers care deeply about building a retirement income
• The pensions market is undifferentiated for most consumers and they have difficulty in identifying different product features or the rationale for them
• Pension savers want to be reassured that the people responsible for growing their retirement savings are doing so responsibly and with an understanding of their concerns
• There is very low appetite for volatility in pensions and consumers don’t understand the reasoning or need for taking risk with their retirement savings
• Consumers associate poor investment performance with incompetence and wrong-doing, with market downturns blamed on bad fund management
• Inertia, while a powerful method for getting people to save, doesn’t always keep them saving during poor market performance
• In consumers’ minds pensions are already guaranteed and discovering this is not the case is ‘shocking’ to many. However, those who are prepared to pay higher charges for greater certainty of outcome are very much the minority and they’re not happy about having to do so
• Consumers are looking for a level of certainty in response to the question ‘what will I get at the end’, that isn’t possible for providers to give
• The top three questions savers want answers to are:
  • ‘What happens to my money?’
  • ‘Is my money safe?’
  • ‘What will I get at the end?’

• Most consumers of DC pensions don’t understand enough about the products or approach to know what the right questions to ask are

• Savers could benefit from practical information that:
  • is accessible and straightforward
  • doesn’t result in further or unnecessary worry
  • corrects misunderstandings about investment, and
  • provides the ‘real’ picture of what goes into their pot, what happens to their pension contributions and what they can do to influence better outcomes.

For more information on NEST’s investment approach download our guide Looking after members’ money (PDF)

You can also read NEST’s response to the government’s consultation Freedom and choice in pensions (PDF)

For more detail on our asset allocation and performance see our fund factsheets. 

Advisers looking for more information about NEST and its investment strategy can go to NEST’s dedicated adviser site: www.nestpensions.org.uk/NESTforadvisers

NEST’s investment approach - key features:

1. unique default option comprising of 47 single-year target date funds, risk managed for each year of retirement
2. focused fund range including Ethical, Sharia, Lower Growth and Higher Risk options with the same low charge as the default funds
3. sophisticated risk management driven by the latest investment techniques
4. high quality analysis and transparent governance  
5. cost-efficient delivery of bespoke solutions powered by leading global fund managers
6. clear investment communications designed with and for members, employers and their advisers.