Several months ago Department for Work and Pensions (DWP), a governmental body that is responsible for pension policy, has published results of the 2012 “Attitudes to pensions” survey. The survey is used by DWP for policy advice, in particular it focuses on peoples’ behaviour in terms of saving and planning for retirement.
What is new about the latest version of the survey is the fact that it paid attention to ‘behavioural’ aspects of individuals’ decision-making. A classical economic paradigm states that economic agents are perfectly rational and act so as to maximise their lifetime utility of consumption. But recently more and more attention has been paid to modes of decision-making that do not necessarily satisfy the ‘perfect rationality’ condition. In order not to call them ‘irrational’ (or ‘stupid’), let us call them ‘behavioural’ because they are of interest of (so-called) behavioural economists.
It seems that British people are increasingly more aware that one should save up for one’s own retirement. 60% respondents agreed that an individual, rather than the government, has the main responsibility for ensuring she/he has sufficient income during retirement. An upward trend seems clear as 52% respondents agreed with the above statement in 2006, and 56% in 2009. Moreover, working-age people also do not expect the government to do the retirement planning for them. Only 39% respondents disagreed with a statement that it’s not the government’s job to advice how much to save (53% in 2006 and in 2009). The question remains: does actual knowledge and well-considered planning come together with increased feeling of responsibility? Not really. 63% respondents reported that sometimes pensions seem so complicated that they cannot understand what is the best thing to do (this feeling was stronger among women and households with lower income). A third of individuals agreed that dealing with pensions scares them and that they avoid thinking about retirement (most likely to agree here were women and young people).
No wonder people avoid planning for retirement – they know hardly anything about the public pension system. For instance, only 11% of women and 25% of men can correctly state what their State Pension Age is. These are very, very low numbers. That is why it was announced in 2012 that the State Pension System will shortly be significantly simplified. The current system will be transformed into the simplest possible, single-tier scheme. Soon we will be able to tell whether this change has any impact on individuals’ decision-making.
A second major change, introduction of automatic enrolment into occupational pension schemes, is also based on a very ‘behavioural’ driver of human actions – laziness. Inertia has been shown to have a great impact on (lack of) decision-making by individuals, so changing the default option by policy-makers to the one under which future retirees will secure a source of income for retirement seems like a sensible thing to do. Especially when one considers the last piece of data from our survey. Almost a half of respondents say that they should have started saving sooner for retirement, but they haven’t. These are the people for whom was the new policy designed. Hopefully, it will prove effective in terms of inducing saving for blissful retirement.