Analysis of the latest Financial Lives Survey from the Financial Conduct Authority (FCA) has rubber stamped the growing need improvement across the four core pillars of Defined Contribution (DC) pension saving: contribution rates, investment performance, fees and length of saving.

The majority of UK investors are simply unaware of how much is needed to be saved to receive even a basic pension. Added Awareness over

Commenting on the findings, UK based financial services consultancy Broadstone said that without greater engagement and understanding, thousands of UK workers could unknowingly drift towards an income shortfall in retirement, it says.

David Brooks, Head of Policy at Broadstone, said: “The four pillars of retirement saving are crucial for those with DC pensions to build financial security in later life. It is worrying, if not surprising, that there appears to be a low level of understanding across these areas which suggests we are heading towards a looming retirement adequacy crisis.

“The findings suggest that for many pension savers, not opting out of their workplace pension could represent a job well done. However, understanding of the importance of contributions, investment performance and fees could make a huge difference to their standard of living when they ultimately reach retirement.

The four pillars

On Pillar 1: Contribution rates - the FCA report finds that  contributions awareness is low. Two in five savers (38%) are unsure how much they’re contributing to their pension, while four in 10 (41%) have not thought about how much they should be contributing. Almost half (49%) have never checked the value of their pension pot.

On Pillar 2: Investment performance just three in 10 savers (30%) did not realise their pension is invested at all, and an even larger group – almost seven in ten (69%) – are unaware of where those investments are held. Most savers stay in their scheme’s default investment fund — but this may not reflect the provider’s performance or their risk appetite, time to retirement or income goals.

On Pillar 3: Fees - awareness continues to be low on how much investors are paying in charges, or worse, even aware that they are paying fees. The survey found that nearly six in ten (57%) are unaware that fees are being deducted from their pension pot.

On Pillar 4: Length of savings there is lack of clarity over how long people need to save for, the FCA report concluded

“Government policy is certainly aiming to make life easier for members by creating fewer, larger schemes that will hopefully reduce fees and create more consistency in performance," Brooks added.

Contributions

“The next phase of the Government’s Pension Review will focus on adequacy and increasing contributions will be a key focus of that investigation. However, understanding the impact of increased contributions on the broader outcomes for low- and medium-income workers need to be understood. The Government could also do more to ensure those who can save more into their pension but are not currently doing so are the priority group in terms of improving outcomes for the largest group of people possible.”

“A key fact that pension savers will increasingly need to understand is their quality of life in retirement will be based on how much they can afford to save now and for how long they can save for or continue working,” he said