Market Research: UK Spotlight on pension holders

Over the last three years, we have significantly increased our engagement with UK pensions professionals. Pivotal to this has been our tailored body of work showcasing the strategic role gold can play in both defined benefit and defined contribution asset allocations.¹ Yet gold remains under-owned by pension funds, despite offering two crucial attributes: liquidity and stability. 

Recently, we took a look at the other side of the coin. Ten years after the UK introduced auto-enrolment into workplace pensions, we surveyed 1,000 respondents to examine their retirement planning, discover how much they know about their pensions and – importantly – find out how they feel about gold.² The results show there is a clear opportunity for gold within the pensions space.

Pension landscape: are Britons well prepared for retirement?

More than a decade after the introduction of auto-enrolment, more Britons are now saving into workplace pensions than ever before. According to our survey, 60% of people aged 18-75 in the UK currently pay into a pension, with most of those having a workplace pension.  Nevertheless, this proportion is low compared with, for example, Australia where closer to 80% have a “superannuation” (pension) fund.³

The majority of UK pension holders have just one pension, ⁴ while around a third have two pensions, and 10% have multiple pensions.

On the positive side, most UK pension holders don’t rely solely on their pension to provide for their retirement: 79% look to supplement their retirement earnings with other investments, chief among which are cash/savings, their state pension, ISAs and property. 

But on the flipside, a sobering 20% do not have any other provisions to fund their retirement (corroborating UK government analysis that two in five UK workers are under-saving for retirement). What’s more, the same number – 20% – do not know the current value of their pension. 

All of which may help to explain why almost a third of pension holders do not feel optimistic about retirement and think it won’t give them the standard of living they’re used to.

Financial advisors are linked to an optimistic and engaged retirement mindset   

Financial advisors seem to be key to having a more diversified retirement portfolio. Of the people who use a financial advisor in their decision making, only 15% have no provisions outside of their pension to fund their retirement. This almost doubles among those who make their own investment decisions: 27% of this group are fully reliant on their pension to fund their retirement. 

Perhaps unsurprisingly, those who use a financial advisor are also more optimistic about retirement – feeling more confident that they will get the standard of living they want, are more open to risk and generally take a more ‘engaged’, active approach towards their pension investment. 

Could gold also play a role?

So, where does gold fit into this picture?

The survey confirmed what we already know: gold isn’t currently a mainstream investment in the UK. We know from our Pensions Age surveys that gold is under-owned by UK pension funds – perhaps not surprising, given their typically relatively conservative composition. 

And this is reflected in the fact that a lot of people simply aren’t aware that gold can sit in a pension: less than two fifths of pension holders know that it can. ⁵ 

Less than 10% of people paying into a pension said that theirs included an investment in gold. That compares with 21% who have invested in gold bars and coins outside of their pension. 

Gold investment activity rises significantly with the use of a financial advisor. Among the contingent who bought gold as an investment, 86% regularly use a financial advisor.  Looked at another way, one third of pension holders who use a financial advisor have made an investment in gold bars/coins.

Importantly, people who lack experience of investing in gold are not necessarily reluctant to do so: Britons are open to owning gold in their pension. Almost two thirds of pension holders say they would be either ‘very’ or ‘somewhat’ likely to choose gold as an investment in their pension in future. And of those, 67% would be new entrants to the gold market, having never invested in it before. So previous gold investment experience is not a pre-requisite for being open to adding it to a pension in the future.

Gold investment appears to signal optimism and a ‘preparedness’ mindset towards retirement

Improved take up of gold in pensions could signal a greater level of engagement and optimism among pension holders: those who have invested in gold outside of pensions are more pro-active and knowledgeable as regards their pension, and are far more likely to have a wider range of retirement provisions in place, rather than relying only on their pension pot.

Younger investors could be key to this. 18-34 year olds are more likely to use financial advisors in some capacity than older investors. They prefer to take an active role in managing their pensions, feeling strongly that they shouldn’t rely on just their pension to fund their retirement. Encouraging younger investors to get involved with financial advisors early on could help drive engagement levels, improving their preparedness for retirement and potentially their propensity to invest in gold.

Summary

Familiarity with gold goes hand in hand with greater levels of engagement in pension investment and preparedness for retirement. All of which are also closely linked to use of Financial Advisors. Correlation does not necessarily equal causality: it could be that people who are naturally more interested in investment are more likely to seek the services of a financial advisor and more open to a broader range of investments. 

The Pensions Regulator is working to get Pension Funds to invest in a broader range of products. Adding gold into the mix could help generate a virtuous circle of improved portfolio performance, greater awareness and more active participation by those who are paying into their pensions and planning for their retirement. 

Gold has the potential to play a far greater role in UK pension funds. We know that it is under owned by pension funds. Yet this research highlights that many pension holders would welcome it as part of their own pot. This points towards a clear growth opportunity for both institutional and individual ownership of gold.

Footnotes

¹Investment Update: The Case for Gold in UK DB Pension Schemes, October 2023;The Case for Gold in DC Asset Allocations, October 2023

²Toluna online survey of 1,000 nationally representative respondents in the UK aged 18-75; fieldwork occurred in August 2023

³Toluna online survey of 1,000 nationally representative respondents in Australia aged 18-75; fieldwork occurred in August 2023

⁴‘Pension holders’ are defined as those who answered ‘Yes’ to the question ‘Do you currently pay into a pension?’

⁵Base: 602 paying into a pension, of which 229 respondents were aware that pensions can invest in gold.