The Financial Services Compensation Scheme (FSCS) has revealed the outcome of their research into how the cost of living crisis is affecting pension savings.
The FSCS conducted continuous consumer research between September 2022 and February 2023, polling a total of 4,479 UK adults aged over 18 - 2,974 of them with a pension. Because claims involving pensions and investment advice are, according to the FSCS, now the most common ones they receive and often the most complex and costly to resolve - they focused their research on the impact that the current economic conditions are having on consumers’ behaviour towards their pensions.
The findings showed that as a result of the cost of living crisis, 26% say they are taking more risks with their money to gain a better return - in those aged under 35 this increases to 45% and to 36% in wealthier households. Additionally, under-35s are significantly more likely to be relying on their savings (60%) than the average for all adults which is 46%.
Nearly a fifth (18%) of those with a pension have stopped contributions altogether in the past few months, and a further 5% have cut their contributions. The FSCS point out that “Although this could provide a temporary relief and help households cover day-to-day costs, a prolonged reduction in pension contributions can derail retirement plans. In addition to missing out on investment growth derived from compound interest, people who stop contributing to a workplace pension also lose contributions from their employer and tax relief.”
Conversely, 64% of those with a pension have kept their contributions unchanged over the past few months and 13% have increased the percentage they contribute - with 87% of those likely to keep the contributions the same in the next six months.
The FSCS believes this means that these consumers are likely to think they have already absorbed the impact of the cost of living crisis when it comes to their pension contributions.
The key take-aways from the research are that consumers are taking action in how they manage their finances in response to higher prices and a squeeze in their real incomes. This includes taking more risks with their money in order to gain a better return and adjusting contributions and making other decisions about their pensions, with some of those eligible opting to access their pots.
The FSCS issues a reminder that the risk of consumer harm can be very high when it comes to pensions and investments because of the amounts at stake and also because of the complexity of the products and the lack of knowledge among consumers and any disruption to pension savings could have consequences for their retirement income plans.
