MOST people have a poor understanding of how the UK state pension works…but many feel the system is unfair once they realise how it does, a study has found.
The study, carried out by the Policy Institute at King’s College London, found people tended to overestimate their knowledge about the state pension and were subsequently embarrassed and concerned when revealed to be wrong on key details.
Once the amount the state pension provides was explained, there was general agreement it was not an adequate amount to live comfortably on in retirement, and people would need to supplement the payments from the state with a workplace pension, private pension, or additional assets such as property.
This view was reflected by retirees in the workshops whose income has struggled to keep pace with rising prices.
Before people were given more information about the state pension in workshops, one in five participants thought it was an unfair system, but this rose to half after the workshops.
A survey carried out before each of the sessions revealed around half of the participants claimed to have a reasonable, basic knowledge of the state pension – but in reality, “their working knowledge … was actually very limited,” the researchers said.
The most common misconception was that each person’s National Insurance contributions are kept in a personal pot to be accessed when they reach state pension age.
Researchers said this was a “strongly held belief” that impacted participants’ views about the fairness of the system.
Suzanne Hall, director of engagement at the Policy Institute at King’s College London, said: “For participants, financial security is the foundation for a good retirement.
“Yet a lack of understanding and a number of misperceptions concerning basic elements of how the state pension works, and who qualifies, is hindering people’s ability to prepare effectively for later life.
“What’s more, on learning about the state pension participants questioned how fair this system is – particularly for those unable to work due to their own ill health or because of caring responsibilities.
“Against this backdrop participants were keen on reforms – both to the state pension itself but also the broader welfare system so as to ensure more people can have the quality of life in retirement they deserve.”
Many people who took part in the study – which brought together 50 people in London and Birmingham – expressed concerns about geographical inequality, as they questioned why the state pension wasn’t weighted to reflect the higher costs associated with living in some parts of the country.
The fairness of the process for qualifying for the full state pension was also raised, and there was strong support for introducing greater flexibility around access for those who can’t work until state pension age.
However, while participants were in favour of providing support to those nearing retirement age who are in need, there were questions around whether it would be more appropriate to reform working age benefits. It was thought this would remove the need to lower the state pension age and help remove the cliff-edge between retirement and pre-retirement systems.
Patrick Thomson, head of research and policy at Phoenix Insights, said: “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 system is low and the communication, around eligibility, how to achieve the full state pension and what this will provide, 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 public are strongly supportive of reforms but rightly recognise they should be focused on helping the most vulnerable without adding complexity.”