7 May 1998

AUTIF'S RESEARCH SHOWS WIDESPREAD CONSUMER MISUNDERSTANDING ON PENSIONS

• AUTIF's Financial Awareness & Consumer Education Tracking Study (FACETS) reveals that 61% of the total sample did not know or thought that no tax was payable on their pension when they retired.
  
• Of those in the 55-64 age group 31% were unaware whether tax would be payable and 17% believed that no tax liability would arise.
  
• 28% thought that half their pension savings could be withdrawn on retirement as a lump sum, with a further 44% unaware of what the level might be.
  
• 26% of the population believed that pension contributions should not be made compulsory. (April research)

The Association of Unit Trusts and Investment Funds' ongoing FACETS study, started in August last year, is being conducted each month across a representative sample of the British population in order to ascertain the level of consumer knowledge and understanding of basic financial matters and products. The particular questions asked in this part of the study seek to identify the level of appreciation amongst consumers as to whether tax is liable on pensions in retirement and the amount that can be taken on retirement as a lump sum from savings in a pension plan or scheme. In the last two months AUTIF has released information focusing on endowment policies and PEPs.

Whilst 45% of men taking part in the survey were aware that pensions were liable to tax, only 33% of women answered correctly. On the other hand, 27% of the men got the answer wrong, as opposed to 19% of women. Similarly, in responding to the statement on the amount that could be taken from pensions savings as a lump sum, 32% of men (23% of women) answered correctly, 34% of men (22% women) answered incorrectly and 35% of men (55% of women) did not know.

(The FACETS research consistently reveals that across all its personal finance questions women are far more likely to respond 'don't know' than men. Men get it right, but also get it wrong, far more often. These results are for the first six months of the survey, August 1997 - January 1998. Total sample of adults jointly or solely responsible for their own financial affairs is 4,326, of which 2299 are men, 2027 women.)

The Government will shortly be setting out in its green paper on pensions reform options for extending compulsory pension savings. Whilst no detail is currently available, AUTIF, as part of its FACETS research, took the opportunity in its April research to gauge public opinion on some of the possible options. Sample size 983.

The question was posed: At the moment all those in employment are compelled to contribute to State pension provision via their National Insurance contributions. For which of the following groups of people, if any at all, do you believe that further pension contributions should be compulsory? You can mention as few or as many as you wish.

Anne McMeehan, Director of Communications at AUTIF said:

"Following the recent call by the National Association of Pension Funds for a radical tax simplification in pensions reform, it is clear that even more fundamental steps will need to be taken by the Government if consumers are to understand what being on a pension will mean to them. Anyone who acted on a belief that their pension would be tax-free could be seriously underfunded once on pension."

She continued:

"The research on compulsion shows the very limited support further mandatory saving would command at the moment. It is ironic that the greatest level of understanding is demonstrated by those who have already retired, who, likely as not, are all too aware of the consequences of not having planned sufficiently in advance. It may be that a combination of simple attractive products and education on the amount people need to save for a comfortable retirement is all that is politically possible."

For further comment please contact:

Philip Warland, Director General AUTIF 0171 831 0898
Anne McMeehan, Director of Communications AUTIF 0171 831 0898

Notes to Editors:

1. AUTIF's Director of Training and Education, Victoria Nye, who represents the Association on the Personal Finance Education Group and the DSS - Pensions Education Working Group, can provide detailed information on AUTIF's current activities in the area of education.
2. The cross-population study is based on independent data collected by RSL, one of the largest operations working in this area and a leading exponent of computer assisted personal interviewing. This is then compiled into a practical format for subsequent interrogation across a wide range of socio-demographic splits using MarketMinder. For further details contact Mike Hare - MarketMinder - Tel: 01778 345588
3. Each month a sample of 1000 people is filtered to isolate those responsible for making financial decisions. It is rigorously selected to reflect the balance of the adult population by sex, age, socio-economic group and geographical location. People are interviewed on a face to face basis to ascertain their understanding of basic personal finance matters that are likely to affect them.
4. There are 14 questions asked each month covering a wide range of personal financial topics. They are the same questions and will not change unless circumstances specifically demand it, in which case they will be replaced by a question of similar weight and where a lack of understanding or appreciation will have similar implications for people's financial security. As this is an ongoing survey these are 'live' questions and therefore their precise nature and phraseology is not open to general disclosure, although members of the press may see them on request for their own appreciation and strictly not for publication for fear of interfering with the research.
5. The questions are asked to establish a True, False, Don't know response, thereby establishing a number of measurement tools. The main AUTIF FACETS index is based on knowledge, i.e. those questions that are correctly answered. In addition AUTIF is in a position to measure the level of misunderstanding, i.e. where the answer given is wrong, the level of ignorance where the answer is 'don't know' and if the last two elements are combined to form a composite, the understanding 'gap' can be monitored. Furthermore, this can be carried through to assess understanding on an individual question basis and to measure any improvement that can be isolated to specific segments of the population.
6. It is not anticipated that there will be much volatility in these indices and a three month rolling measurement is being used so as to ensure the sample has maximum relevance. What is sought is the translation of a positive trend over time in the level of understanding by the population at large.