There’s a problem with the word ‘Pension.’ For most people, it acts as a switch to glaze over and quickly move on to the next subject. But why does this simple word have such a powerful effect on our behaviour?
The Fear Behind the Word
The issue isn’t really about pensions themselves – it’s about the future and our fear of the unknown. When we hear ‘pension,’ we’re forced to confront our own mortality and the uncertainty that lies ahead. For some, this creates anxiety and avoidance. For others, it triggers an overly optimistic view that “things will fall into place and sort themselves out” – as they say in Yorkshire, ‘be rite.’ Unfortunately, both reactions lead to the same destination: a place where people don’t own their financial future and must live with the uncertainty that brings.
The Timing Paradox
Here lies the fundamental challenge of pension planning: it only works by addressing a problem when it isn’t yet a problem. As humans, we’re simply not wired to think this way. We’re naturally inclined toward short-term thinking – a trait that served our ancestors well when their biggest concerns were finding food, shelter, and avoiding immediate threats. You can’t address your income in old age when it becomes an issue, just as you can’t take out life insurance on your deathbed. By then, it’s simply too late.
A Historical Perspective
The idea of planning for a long life is remarkably new. As a species, we’ve existed for approximately 300,000 years, and it’s only in the last 0.1% of that time that old age has become a realistic consideration. For most of human history, our ancestors’ outlook was necessarily short-term, focused on immediate survival rather than retirement planning. This short-term mindset still dominates today, even though our circumstances have dramatically changed. The average person born today can expect to live between 87 and 90 years, compared to just 46.4 years for women and 41.4 years for men born in 1871.
The Accidental Pension Generation
Go back a generation to those born around 1940, and pension planning was largely taken out of their hands. Far more of that generation built up long service with large employers who provided final salary or defined benefit schemes. Membership before 1986 was generally compulsory, creating what we might call “accidental pensions.” Combined with the state pension, typical workers found themselves with good income in old age thanks to long-term decisions made by their employers and government. But don’t mistake this for paternalism– when most of these schemes started, life expectancy was much lower. Many employers probably expected scheme surpluses, not the massive funding burdens that longevity improvements eventually created.
The Shift to Personal Responsibility
The Financial Services Act 1986 changed everything. It introduced personal pensions while simultaneously removing employers’ ability to mandate company scheme membership. This shift moved the emphasis for pension planning from employer to employee – but the average person on the street isn’t equipped to make these determinations. There’s nothing in our culture or education system that prepares people for this responsibility. They’re literally saving blind at a time when they can ill afford to be. Research by Standard Life in 2021 found that two-thirds of people retiring that year were at risk of not having enough pension savings to sustain their planned retirement income.
The Modern Challenge
Today’s workers face unprecedented challenges. The World Economic Forum warned in 2017 that “the anticipated increase in longevity and resulting ageing populations is the financial equivalent of climate change. We must address it now or accept its adverse consequences will haunt future generations.” The Telegraph has noted that people in their 20s and 30s are the first generation in meaningful history to be less affluent than their parents. With housing costs having effectively doubled in real terms over 20 years and student debt averaging £45,600, younger generations face what we call the H.E.P. challenge: Housing, Education, and Pensions. Modern workplace pension setup has attempted to address some of these challenges through auto enrolment pension schemes, but psychological barriers remain. Even with auto enrolment compliance ensuring most workers are enrolled, many remain disengaged from their pension planning.
The Path Forward
Understanding the psychology behind pension avoidance is the first step towards addressing it. We need to acknowledge that humans don’t naturally engage with their long-term financial future and design systems that work with, rather than against, our psychological tendencies. This is where initiatives like auto enrolment pension schemes become crucial – they remove the psychological barrier of active decision-making whilst still allowing people to opt out if they choose. However, even with auto enrolment compliance, we need ongoing education and engagement to help people understand why their future self will thank them for the decisions they make today. For employers, particularly workplace pension for SMEs, integrating pension scheme administration with payroll and pension integration can help remove barriers and make pension saving as seamless as possible. Outsourced payroll services that include pension administration can be particularly valuable for smaller businesses. The conversation about pensions needs to shift from fear-inducing technical jargon to practical, relatable guidance about securing financial independence. We need to make the abstract concept of “future you” feel as real and important as “present you.”
At WPD, we understand the psychological challenges of pension planning. Our approach focuses on making complex decisions simple and helping both employers and employees navigate the path to financial security. Whether you need workplace pension setup or comprehensive pension scheme administration, we’re here to help demystify pensions for your workforce.