The pensions industry should focus on positive messaging and look to explain the advantages of pension savings to prevent individuals from opting out amid the cost-of-living crisis, former Pensions Minister, Baroness Ros Altmann, has said.

Altmann argued that pension providers have failed to explain the advantages built into pension saving, highlighting research from the Pensions Management Institute that showed that 20 per cent of workers have cut or stopped their pension contributions.

"This is a travesty and highlights my repeated warnings in recent years that the pensions industry has not done nearly enough to enthuse people about their pensions, nor to explain the many reasons for building up money by using the advantages built into private pensions," Altmann stated.

"There are so many reasons to encourage people to increase or at least continue their pension contributions, even during the cost-of-living crisis."

In particular, she argued that scare stories about adequacy issues and later-life poverty are "not the way to engender positive pension feelings", emphasising that while stories about inadequate pension contributions are designed to encourage people to save more, they often have the opposite effect.

In addition to this, Altmann warned that pension contributions are still misunderstood by most people, explaining that people will have far less money to spend than the amount they stop paying in, with many unaware of the “free money” they could be missing out on from their employer if this is not properly explained by their pension provider.

She also suggested that those on Universal Credit could stand to lose "far more" and would suffer a large reduction in income if they reduce or stop their pension contributions, as Universal Credit ignores the whole of pension contributions when it calculates net earnings.

"So, paying £100 a month into a pension scheme will reduce the income used in the Universal Credit calculation by the full £100," Altmann explained.

"If their income is lower, they receive extra benefits, so a reduced income of £100, after applying the UC taper, means benefits will be £55 higher. However, stopping pension contributions of £100 will mean £55 less in UC. So workers on UC, will have only an extra £45 to spend, while losing at least £200 from their pension fund – and maybe even more."

In light of these concerns, Altmann stressed the need for the industry to capitalise on the success of auto-enrolment, by reaching out to customers directly "as any other consumer industry would do".

Indeed, Altmann argued that, currently, providers have "just banked the success ‘so far’" and argued for the government to "bring them more money by increasing minimum contributions or lowering salary and age thresholds".

"It seems they have not risen to the challenge of attracting people to want to pay in more, or even to keep paying in. What a wasted opportunity," she stated.

"Instead of relying on scare stories in the media about inadequate contributions, pension firms should start explaining the positives that customers need to understand before it’s too late."

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