Pension investments – breaking the misconception

People have fundamental misconceptions about pensions, with only 36% knowing they are invested in the stock market. Just over one-third (34%) said their pension was not invested, with another 30% being unsure.

Helen Morrissey, Head of Retirement Analysis

Why this misconception matters

If members think the value of their pension is static or only affected by what they pay in, they could be less inclined to keep an eye on whether they’re on track. There’s a danger they might not understand the power of investing until it’s too late. Pensions can’t normally be accessed until age 55 (57 from 2028), so if they see their investments changing in value over time, it could encourage a more proactive approach to their pensions and retirement planning.

Seeing the value of their pension change with the performance of their investment could make members more likely to check in on their pension’s progress. The increase in awareness could lead to better planning, increased contributions and potentially greater financial security in retirement.

Mind the knowledge gap

One of the best things employers and pension providers can do is provide financial education to employees.

Providing robust education in the workplace is important for building financial resilience and contributes to financial confidence. Within any financial education, there needs to be a focus on demystifying investing in a clear and jargon-free way. Especially because investments can go down as well as up in value and members could get back less than they invest, so it’s important they understand at least the basics.

It’s a good idea to employ a variety of formats such as emails, intranet posts or user-friendly infographics. By recognising that not every employee will engage with the content in the same way, the chance of capturing their attention is increased.

Workplace initiatives can be particularly effective. Employers can host pension education sessions or run pension-themed team meetings, providing clear explanations and resources about how pension funds are invested and the benefits of active engagement.

Additionally, financial advisers can offer personalised guidance, helping individuals understand their investment options and make informed decisions.

Read more about financial resilience in the workplace

The role of investment choices

Many people remain invested in the default fund offered by their pension provider, which is designed to be well-diversified across various geographies and asset classes.

While the default option provides a robust investment strategy for building a pension, individuals should also have the option to tailor their investments according to their preferences.

We recognise that a default fund won’t be right for everyone, so we offer flexibility of choice to allow members to align their investments with their broader financial goals and values.

By offering over 4,000 investment choices, we make sure there’s something for everyone. And we make members aware of this through targeted communications. Because just having the choice isn’t enough if members don’t know about it.

If employees can align pension investments with their risk appetite, beliefs or values then they may be more inclined to take an interest.

Find out more about the HL Group SIPP