Pension systems need to be more inclusive of diverse populations to ensure savers can make the most of the financial benefits offered, Standard Life and the OECD have said, after joint research revealed different savings attitudes between socio-economic groups.

The three-year joint research initiative aims to examine the attitudes and views towards saving and retirement of under-served populations, with its first report exploring the factors that may influence the ability and willingness to save for retirement among diverse populations.

The report revealed that several factors affect individuals’ participation in asset-backed pension plans, including income levels, education, employer size and a range of demographic characteristics including gender, age and ethnicity, and that more needs to be done to address and improve this.

The OECD’s analysis argued that, as pension systems were initially designed for full-time permanent employees, certain groups are less well catered for, with part-time and temporary employees, self-employed workers and informal workers tending to have worse access to asset-backed pension arrangements.

The research also suggested that women in particular participate less in asset-backed pension plans in many countries due to their career patterns and attitudes towards savings.

In addition to this, the report found that although financial incentives are useful tools to promote retirement savings, different types of incentives work for different groups.

In particular, low-income earners were found to be less sensitive to tax incentives because they may lack sufficient resources to afford contributions, they may not have enough tax liability to enjoy tax reliefs fully, and they are more likely to have a lower level of understanding of tax-related issues.

Non-tax financial incentives, such as subsidies and matching contributions paid directly in the account of eligible individuals, were therefore highlighted as better tools to encourage retirement savings among low-income earners.

The report also included findings from Standard Life’s 2021 Retirement Voice Study, which revealed a "pronounced difference" in private pension uptake, with just 37 per cent of Asian people and 36 per cent of Black people saving into private schemes in the UK, compared to 56 per cent of White people.

The research also found that certain groups would rather invest their money in property than in a pension, with nearly half (48 per cent) of people of both Asian and Black populations preferring to do this versus 31 per cent of people of White ethnicity.

Confidence in making financial decisions also varied across socio-economic characteristics, with the OECD highlighting ethnicity as a significant factor, as the research found that while confidence increases with age, income levels and work status, Asian and Black ethnic groups are more likely to feel confident compared to people of White ethnicity.

However, few differences exist across socio-economic characteristics regarding preferences for investment risk, as the report found that while capacity to shoulder investment risk decreases in older generations, there was no marked difference by gender, ethnicity, language, religion, personal income, or employment status.

The initiative also considered the impact of the cost-of-living crisis, recording a shift in savers preferences towards income certainty, as 78 per cent hoping for increased certainty, and away from investment risk taking with 49 per cent preferring to take less investment risk even if it means less money over the long term.

Given the findings, Standard Life and the OECD suggested that there are a number of policy changes that could help to make asset-backed pension systems more inclusive.

In particular, the organisations suggested that there should be better understanding of the differences across socio-economic characteristics to ensure that selected design features can be improved to reflect a wider array of preferences.

It also argued that targeted communication could help define a retirement income objective and check whether individuals are on track to achieve it, identifying the pensions dashboards as particularly helpful here.

In addition to this, it suggested that identifying individuals who lack confidence in making financial decisions can help targeting financial literacy programmes, as well as identifying which groups of individuals may lag behind in terms of retirement planning and what sources of guidance may work best for different people.

Standard Life chief marking officer, Sangita Chawla, stated: “Better understanding the views, attitudes, and expectations of diverse populations towards saving and retirement is vitally important if we are to further improve the design of asset-backed pension systems to better account for their different needs.

“While it may not be possible to design pension plans that adjust to the situation of every single sub-group of the population, having a greater awareness of the differences across socio-economic characteristics means that selected design features can be improved to reflect a wider array of preferences.

“Our research with the OECD highlights that pension systems could be more inclusive to serve a wider range of people, who increasingly are responsible for their own pension arrangements.

"Those with limited or no access to workplace pensions are in danger of being left behind. By shining a light on the issue and better understanding the challenges faced by diverse populations we can begin to build more inclusive pensions for all.”

Adding to this, OECD principal economist at the private pension unit, Pablo Antolin, stated: “It is important to consider individuals’ views, attitudes and expectations towards saving and retirement, as these can affect participation in asset-backed pension arrangements and can vary significantly across socio-economic characteristics.

“The analysis of Standard Life’s Retirement Voice 2021 data shows that income, employment status, age, gender and ethnicity may influence how people in the UK perceive saving and risk taking, their level of confidence in making financial decisions, what they consider as positive or negative aspects of retirement, what financial commitments they expect to have in retirement, their attitudes towards planning for retirement and the sources of guidance they are more likely to use.

“Understanding such differences can shed light on how the design of asset-backed pension arrangements could improve to target under-covered populations and ensure that their preferences are taken into consideration.”

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