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Welcome to the seventhedition of viewpoint,Harris Interactive’s UKfinancial servicesnewsletter.

For this edition we explore howwe think the forthcomingpension reforms are going toimpact the working population.

We look at why these reformsare needed, the anticipatedsuccess of the reforms and thechallenges the reforms face.

Pension Auto Enrolment is just around the corner!Auto enrolment is on its way from the 1st Oct 2012. Over a period of time it isestimated that more than 10 million people will be enrolled into a new workplacepension.1

If you are aged between 22 - 64 years old in employment, currently earning over£8,105pa and not presently in a company pension, you will be auto enrolled intoa pension in the near future.

The Government wants everybody to take responsibility for saving for their ownretirement and our research2 shows that the majority (55%) of the UK populationagrees with this sentiment.

Over the next few years (by 2017) every working person within the above criteriawill have the ability to join a pension and the individual will have to opt out of apension if they feel this is not the right savings medium for them.

This has to be a good thing for people of all ages; helping them save for theirretirement by providing a platform to save and continue to save throughout theirworking career – hasn’t it?

For more information on our financial services research practice visit:| www.harrisinteractive.co.uk PAGE 1

ISSUE 7 - September 2012

viewpoint

This edition was researched andwritten by Adrian Wooldridge,

Financial Services Research Team.awooldridge@harrisinteractive.com

Some people may not be able to afford to payinto a workplace pension

It’s every individual’s responsibility to ensure they’veenough money to live comfortably in retirement

Workplace pension reforms encourage morepeople to save more

I prefer to save in other ways

Workplace pension reforms will be a safe wayof saving for retirement

I am prepared to take a chance that the statepension will be enough

I have extra money that I can put into apension

Peoples’ thoughts on pensions and saving for retirement

24 44 2263

35 41 1474

47 30 5116

48 26 8117

53 26 4116

34 15 42622

29 13 42628

Read our latest blogs:

- Retirement pipe dream

- No such thing as a free lunch

- The cost of a crisis

Follow us on Twitter

Strongly disagree Disagree Neither Agree Strongly agree

Chart 1

Issue 7 | September 2012

For more information on our financial services research practice visit: www.harrisinteractive.co.uk | PAGE 2

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Why is Reform Needed?

The population is living for longer

As the baby boomer generationgrow older, the number of peopleretiring increases at a faster ratewhich is borne out by 22% morepeople reaching retirement this yearcompared with last. With anincreasing number of people retiringover the next 25 years the size ofthe problem is only going toescalate. For the first time this year,those over 65 are set to become agreater proportion of the UKpopulation when compared to theunder 16’s, bringing the number ofretired people to 11.8 million.3

It is also known that 1.2 millionpensioners have no income otherthan the state retirement pensionand state benefits.4 If this trendcontinues it will mean that there areincreasing numbers of retirees in theUK having to solely rely ongovernment handouts, which wesimply cannot afford.

Funding retirement is not top ofmind

For many, funding their retirementdoes not figure highly in peoples’minds until it is too late. Twice asmany people think on a regular basisabout socialising and going out(37%) rather than funding theirretirement (18%). In fact ourresearch shows only 10% of peoplewithout a pension think aboutfunding their retirement on a regularbasis. This means that thegovernment has not only to providea platform to save (auto enrolment)but also a significant period ofcontinuous education to influencemindset so that the message of

“saving for your future” is taken onboard to keep people enrolled.

The population is not savingenough

Quite frankly more people should besaving for their future retirement.

Our research shows that 44% of theUK population lack confidence in theamount of provision they have madefor retirement and a massive 21% ofpeople we surveyed have not madeany provision for their retirementwhatsoever. This is a staggering5.6m people in the UK who atpresent do not have any safety netat all.

Recent DWP figures show that only26% of UK private sector workers areactive members of theiremployers’ pension schemes, downfrom 31% in 2007. The DWP alsoreports that the number of privatesector companies offering workplace

pensions has fallen from 41% to 31%in five years.5 Both schemes andscheme members are falling awayand auto enrolment could changethis.

The reality is that a lot of thesefuture pensioners will be workingwell into their 70s if not 80s purelybecause they have underestimatedthe amount of savings needed toretire on.

This is backed up by Mark Wood ofthe Telegraph who quoted that the“...average amount set aside forpension savings in the UK is just£25,000 which will currently buy apension of little more than £15 perweek”. The article goes on to saythat the typical auto enrolmentcontribution rates suggest that thisis not going to change much – whichis extremely worrying.6

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Chart 2

Issue 7 | September 2012

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How successful are the reformslikely to be?

It depends how you measuresuccess. If you consider increasingthe number of people whocontribute to a pension to be asuccess measure, our research issaying that 46% of working peoplewould stay opted into a pension,42% are unsure and 13% would optout.

However further examination of thefindings shows that only 25% ofthose currently without a pensionwould stay enrolled. The real successwill be to encourage these people tostay opted in and increase theamount saved for retirement acrossthe board.

But the reforms face the followingchallenges:

Younger generations have otherpriorities

The younger generation is burdenedwith student debt and struggling toget jobs. Those lucky enough to havea job desperately want to jump onthe housing ladder. They think lessabout saving for retirement andmore about living for today.Generally it is acknowledged thatover 75% of under 30 year olds havenot got a pension. Their priority atthis point in their life stage is “savingfor a deposit to buy their ownhouse” rather than saving for theirfuture retirement.

However, for younger people gettingon the housing ladder is becomingincreasingly difficult with tightermortgage lending resulting in theneed for greater deposits on alreadyexpensive housing. This is pushing

the age of first time buyers up andfurther delaying funding for theirretirement.

Worryingly, 40% of all people wesurveyed expected their main hometo support them financially in theirretirement; this shows that there isa huge gap between the reality andexpectations of retirement planning.The stagnant housing market willfurther impact on the size of futurefunds. A lot of people today areexpecting their houses to continueto increase in value to pay for theirretirement and for inflation toreduce that mortgage debt - in bothcases, unfortunately this is no longertrue.

Increased personal debt held forlonger

In the current “buy now save laterapproach” to life, debt can figurestrongly throughout a person’sworking life. Paying off debt isdelaying saving for retirement whichis another significant factor affecting

retirement. Recent research byMGM Advantage shows that peopleapproaching retirement have anaverage of £22,500 of debt. This isan increase of 150% on recentretirees. Even if they intend to clearthis debt with lump sums from theirretirement pots, it obviously meansless for funding their retirement.7

However, increasing debt levelsthroughout the UK population fromstudents to pensioners - generalinflation, stagnant wages,redundancy and recession all meanthat less is being saved forretirement... at the moment.

Affordability

At the end of 2011 30% of the UKpopulation were finding it a constantstruggle to keep up with their billsand other repayments. In today’sstraitened times encouraging peopleto contribute each month forsomething that’s so far in the futureis hard going, especially when theyare currently living day to day.8

25

46

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42

Likelihood of remaining enrolled in a workplace pension

0% 20% 40% 60% 80% 100%

Currently nopersonal pension

All working

Stay opted in Opt out Unsure

Chart 3

Issue 7 | September 2012

For more information on our financial services research practice visit: www.harrisinteractive.co.uk | PAGE 4

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Our research also indicates thataround 54% of people say theycannot afford the extra payment toput into a pension. This is going toprove a strong challenge for thegovernment to overcome as theseare probably the people that needto save for their future the most.

Through using inducements such astax saving and employercontributions this will hopefully gosome way to encouraging people tosaving for their future.

Relevance of the reforms

Are the pension reforms going tohelp those who are 10 to 15 yearsaway from retirement? Especially ifthey have outstanding current debt.

In most cases these people will nothave the capacity to save enough inthe 10 or 15 years before theirretirement and perhaps shouldprioritise paying off the debt firstand save later. If they are not in debtthere is an argument that thesepeople should be exhausting ISAallowances before they contributesignificant amounts to a pension.

Could this in fact be a futuremis-selling scandal? Auto enrollingpeople into pensions later on intheir working life when it is notsuitable for them? But that is for afinancial advisor to assess.

Right now the way pensions aregeared means that auto enrolmentshould benefit the youngergeneration the most as they havethe longest time to build up asignificant sum before retirement.But with fluctuating financialmarkets, if they see their investmentgoing down, will they continue tocontribute?

Building trust in pensions

In the short term the governmentneeds to ensure that whenindividuals are auto enrolled intotheir company scheme that theyremain in the scheme for theforeseeable future.Our research shows that 41% of

people do not trust pensionswhatsoever and a significant 61% ofpeople will opt out or be unsureabout remaining enroled. Thismeans the government and pensioncompanies will have to work hard atimproving trust in pensions, ordesign similar new products toencourage long term saving andsimultaneously building trust.

So why don’t people trust pensions?Consumers believe there is an issuearound unreliable returns, as well astrust in financial institutions as awhole, which has been exacerbatedwith the recent financial crisis.

It doesn’t matter if the reactions aretrue or not, what is important is thatit is a perception and as such needsto be addressed either by dispellingdoubt or re-designing products sothat perceptions change. This isgoing to be a real challenge for allinvolved.

Trust in pensions to provide sufficient retirement income

I do not trustpensions whatsoever

I trust pensionsimplicitly I trust pensions

I somewhattrust pensions

41%

4% 13%

43%

Chart 4

Issue 7 | September 2012

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Is it a good initiative?

Overall the research shows that63% of people think that autoenrolment is either “a good or verygood idea”; it is encouraging thatpeople recognise what theGovernment is attempting to doand it is a positive step toencourage us to save more and forlonger. However when we look atour research on a more personallevel doubts start to appear, with74% of people who do not have apension claiming that they are‘unsure’ or that they would opt out.

As discussed before, is a pensionthe most suitable savings vehicle forthose closer to retirement? It is amajor challenge to ensure thegovernment and the pensionsindustry keep pension productsrelevant to their customers as theirneeds and expectations change andevolve as they become morefinancially sophisticated. If theydon’t, pension companies riskbecoming alienated and shunnedfor other investments and savings atthe very least.

Look at learnings from anothermarket, in the US, take up of theIRA (Individual Retirement Account)plans are high as they allow theindividual to access fundspre-retirement for key life events(weddings, buying your first home,job change or loss for example) ifneeded. It is this flexibility thatencourages people to save for theirretirement knowing they can haveaccess to their funds and repaythem before they retire. Why don’tthe UK authorities and pension

companies offer a similar type ofproduct in the UK?

There is no doubt that autoenrolments will be good for mostworkers that do not have a pensionat present. However the realbenefits of this scheme will not befelt until many years into the futureand only then if this initiative is partof a larger and ongoing educationprogramme stressing the benefits ofindividuals taking responsibility forsaving for their future retirement.

This leads us to anotherfundamental question, we all knowthat a varied multi strand approachto retirement (ISAs, shares,pensions, property.....) is the rightway to spread risk, however, arepensions the right medium/formatfor saving for the future in today’sever increasingly fast movingflexible world or are they beginningto be outdated even now, nevermind 20 years from now...I think Iwill save this debate for anothertime!

Reference sources & useful links

1. DWP 2011 Auto-enrolment &Workplace Pension Reform

2 (& charts 1-4). Harris Poll GlobalOmnibus. Survey conducted onlinebetween 7th-15th August 2012,amongst 1997 GB Adults 16+. Dataweighted to be representative of GBpopulation.

3.MGM Advantage - OurRetirement Nation 2011 Report

4. Source: Households belowaverage income, DWP, GB. UpdatedSept 2010

5.DWP Employers’ PensionProvision survey 2012

6.Export-led growth vital as taxburden rises from an ageingpopulation - Daily TelegraphSaturday 25th August 2012

7.MGM Advantage - OurRetirement Nation 2011 Report

8. Harris Interactive viewpointNewsletter December 2011

Continued from page 4...

For further information related to this article, such as the background data, or to suggest new topics forinclusion please email financial@harrisinteractive.net or call +44 (0)161 242 1360

Read our latest blogs:

- Retirement pipe dream

- No such thing as a free lunch

- The cost of a crisis

Follow us on Twitter

This edition of viewpoint wasresearched and written by:

Adrian WooldridgeFinancial Services Research Team.

awooldridge@harrisinteractive.com