Page 6 - Savings Psyche
P. 6

Key findings
Understanding the savings psyche of the UK

Pensions paradox                                               The power in our hands

A comfortable majority of respondents to The savings           Almost two-thirds (65%) of respondents to The savings
psyche of the UK, namely 67%, state that they trust their      psyche of the UK stated that they want a level of flexibility
own judgement on financial decisions, and 63% think they       in their pension options. In general, younger people see
know the right questions to ask. Given such confidence, it     greater benefits in having the flexibility to use pension
is paradoxical that general levels of saving for retirement    contributions for matters other than purely funding
remain stubbornly low, with many making inappropriate          retirement. Conversely, almost 25% prefer no flexibility,
choices or no choices at all. Overconfidence is a commonly     clearly attaching value to a more prescriptive approach.
observed trait in behavioural economics and may help           Seeing this in context with the quoted statistics around
explain the divergence between respondents’ evaluations of     choice and education, a path begins to emerge, with a clear
their abilities and the choices that they actually make. The   win available for companies that are able to provide the
data contained in the report also shows that confidence        information people crave, the options they want and the
evaporates to a considerable extent at the point of            guidance that leads them to the right decision.
decision-making, suggesting that a confidence pinch point
is at play.                                                    Blazing the trail

Knowledge gaps                                                 The research shows that 74% of employees think that
                                                               the Lifetime ISA (LISA) holds either an equivalent level of
Despite many respondents claiming to be confident, very        appeal to the traditional pension or a higher level. However,
few have high knowledge levels. More than a third of all       only 37% are totally sure how they work. Given the positive
respondents claim to have little or no knowledge and           sentiment from those who are up to speed with the LISA,
understanding of savings, or a level that has significant      smart employers can offer it to their staff as a more flexible
room for improvement (35%).                                    contribution-based savings choice that addresses more
                                                               needs than a pension does (and there will almost certainly
Choice and shopping around                                     be reputational advantages to being the first to offer it).

On average, most people plan to look at three                  Risk aversion
financial products for short-term savings and four for
long-term savings, before making a decision. Given previous    Respondents to the survey are extremely risk-averse,
research highlighting the lack of ‘shopping around’ in         perhaps even more so than would be predicted by insights
financial services, such figures represent a healthy level     from behavioural economics. Most (60%) agree with the
of aspiration. However, the desire to shop around should       statement that ‘a safe and secure, risk-free environment is
not be confused with a preference for a vast amount of         important to me, even if it means a lower return’, compared to
choice. Too much choice and complexity tend to lead to         only 8% who disagree. This represents a huge preference for
decision-making paralysis, with more than a third (35%) of     risk-free savings.
respondents of the opinion that there is too much choice
when it comes to retirement savings and cash ISAs.

The available choice being too complex and confusing is
also one of the most frequently cited barriers to making
financial decisions. Given the tendency of people to
procrastinate and to take the path of least resistance, doing
nothing in the face of an intimidating number of options
is easily understood. Simplified and guided choice, what
behavioural economists would call an effective ‘choice
architecture’ clearly has an important role to play in
countering decision-making paralysis.

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