What is the purpose of the state pension? How well do people understand the system? Is it fair? What is the role of the individual vs the state vs the employer when it comes to preparing for retirement?

We have been exploring these questions with The Policy Institute at King’s College London to understand public attitudes towards the state pension and explore how it can be made fit for purpose in the 21st century. This has involved two public workshops, in depth interviews and a roundtable event with stakeholders from across the industry*.

The deliberative study allowed us to move beyond the top-of-mind responses to give participants time and space to reflect on a complex state pension system and their views of retirement as a whole.

What participants wanted the most from their retirement was the ability to maintain their independence and freedom – specifically in relation to their health and finances. The state pension forms a significant part of this and was consistently defined as a form of financial support that will ensure people can achieve a “basic” standard of living in retirement.

Poor understanding and misconceptions commonplace

While there was a general acceptance of the role of the state pension, understanding of how the system works was poor. A survey carried out before each of the workshops revealed around half of the participants claimed to have a reasonable, basic knowledge of the state pension. But questioning during the workshop found knowledge of even the basic aspects of the system was very limited.

Five main knowledge gaps became clear: the number of years of National Insurance contributions needed to qualify for the full state pension, eligibility criteria, the value of payments, what the “triple lock” is, and how the state pension differs from workplace savings.

Poor understanding has led to misconceptions. The most prominent being that each person’s National Insurance contributions are kept in a personal pot to be accessed when they reach state pension age. This was a strongly held belief that impacted participants’ views about the fairness of the system.

Concerns over adequacy and fairness

For most people in the UK, relying on the income from the state pension alone won’t be enough to maintain their expected standard of living in retirement. It will need to be supplemented with additional assets. Participants in the workshops agreed with this, recognising that a workplace pension, private pension or additional assets such as property is needed to bolster retirement income.

The cost-of-living crisis has brought this into sharp focus, and retirees in the focus groups reflected on some of the struggles they have come up against with rising prices, in particular meeting the demands of rising gas and electricity costs. 

As well as adequacy of payments, there were concerns over the equity of the state pension system. Of particular concern were geographical inequalities in living costs and variations in life expectancies. Some participants questioned whether the state pension could be weighted to take these differences into consideration, although there was an acknowledgement of the additional complexity this adds to the system.

Fairness was also raised around eligibility. There was strong support for reforms to introduce greater flexibility around access to the state pension for those who can’t work until state pension age. But while early access was welcomed, there was a general feeling this should be limited to specific groups, such as those who can no longer work due to health reasons or the physical demands of their role, and people with caring responsibilities.

With the exception of those unable to remain in work, age was viewed as fairest way to determine access to the state pension.

The case for reform

The state pension matters to all of us, that’s why understanding what people think about it can help to identify areas for improvements and shape policy decision-making for the better. It’s clear that knowledge around the current system is low and communication needs to improve. Acting on this will mean people have a clearer understanding of what is needed to meet their retirement goals and put plans in place to plug any gaps in savings.

As large numbers of our ageing society reach state pension age in the coming decades it is important that the system is trusted, sustainable, understandable and supports the financial security of retirees. The deliberative research has highlighted that there is strong support for reforms but rightly recognise this should be focused on helping the most vulnerable without adding complexity.

Phoenix Insights will shortly be publishing our recommendations looking at the future of the state pension.

Notes:

*Full report from our research with The Policy Institute at King’s College London is found here: The Future of the State Pension