Will pension savings weather the cost of living storm?


Sharon Bellingham

Sharon Bellingham

Master Trust and IGC Lead.

With households under considerable financial strain from the rising cost of living, many of us have changed the way we manage our finances. Whether it’s where we buy our groceries from, wearing extra jumpers indoors, or forgoing a coffee on our way into work, spending habits have changed with a focus on everyday essentials, energy, and housing costs. 

Households are impacted in different ways - our 2022 Retirement Report told us that 4 out of 5 people expressed concerns about making ends meet. The latest Scottish Widows Women and Retirement Report showed how women are disproportionately impacted by the rising cost of living, and there’s a distinct disparity for lone parents, with single mothers particularly financially vulnerable. 

So far, we’ve seen contributions remain resilient, and there’s not been any notable changes with members reducing contributions or opting out.

Anecdotal feedback in the market indicates that our position is not unique, and experience so far has been more positive than some early headlines suggested. In the same way that we saw inertia play a role in the success of auto enrolment and how saving via payroll removes behavioural barriers, it’s likely to also play a part in contribution levels being maintained and opt out rates staying low, given that it requires a decision and an action.

Low levels of engagement may be an influencing factor, but members may also recognise the importance of paying into a pension (and receiving an employer contribution). 

At the other end of the pension journey, the rising cost of living may be influencing how and when members are taking benefits – enquiries have increased, and our research shows that around 20 per cent of our members cite this as the main reason for taking their pension.  The latest research conducted by Lloyds Banking Group (LBG), which explores views and experiences of LBG customers and UK households, shows that consumer sentiment remains subdued. Although inflation appears to be easing, interest rate rises undoubtably cause mortgage-holders concern.

After more than a decade of low interest rates, many households are facing increasing mortgage costs, and while these can be managed in isolation, the current strain on household budgets could result in tough choices. Renters are not immune either, as landlords may pass on these increases through rent prices. 

As the rising cost of living pushes more people into financial vulnerability, Scottish Widows’ customers truly benefit from the considerable investment made to support those in vulnerable circumstances – our unique “record and share” facility, helps us identify and safeguard vulnerable customers across all LBG products with only one notification. Customers may share information with us and disclose a vulnerability trigger, but the wealth of data held within LBG means that it’s possible to infer whether a customer is potentially close to becoming vulnerable – helping us support them and take action with that in mind.

Money worries are likely to persist in the short term so it’s important that employers, trustees, and pension providers get the balance right when engaging with members about their pension savings. Sensitively educating and providing broader financial wellbeing support is key to helping members make informed decisions on what matters now, as well as future financial resilience.  

In January, The Pensions Regulator (TPR) urged trustees to support savers amid these economic challenges, outlining clear expectations on governance and oversight expectations and how investment strategies and communications support should be considered, all with the aim of strengthening saver outcomes. Whilst prepared for trustees, it has broader relevance for employers and pension providers as a framework to supporting members. Most notably, any support needs to keep the longer-term impact of the rising cost of living front of mind, and that communications adapt to the economic environment and the challenges that members may face now and in the future.

This article was first published in the May 2023 edition of Corporate Adviser – in the Master Trusts & GPP Defaults Roundtable supplement.



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