Workers have the best intentions to make the most of their pension saving potential when their salary increases, but only consider doing this for up to a month before slipping back into old habits, according to research from Zurich UK.
The Set the Right Goals study combines research from YouGov of over 2,000 UK adults across the UK with a unique experiment from neuroscience specialists Mindlab.
This tested a further 900 participants to measure the effect of emotions on savings and took a closer look at the difference between what people say they will do, and their actual behaviour.
The YouGov findings show that more than two fifths (42 per cent) of UK adults say earning more would encourage them to save more into a pension. However, the Mindlab behavioural study discovered that there is a short period of up to a month where people actually consider saving more following a pay rise.
This means there is just a small window of opportunity for people to change their savings habits when affordability improves, and put a little more aside each month.
Anne Torry, head of Zurich UK Life, comments, ‘Saving money for the future can seem a daunting prospect, particularly when we have financial pressures that we know will affect us in the short term. It is therefore unsurprising that, despite good intentions, an opportunity to save more – such as a promotion or salary increase – can often pass us by.
‘Many people think that they will save more in the future when they get a pay increase but in reality they quickly adjust spending to reflect their new salary and so no longer see the increase as extra money that they can save.
‘Consistency is key to successful saving, and choosing to save just a little more each month can make a huge difference to your financial future in later life.’
Torry says is important to get people to commit now to actions that will automatically increase their pension contributions in the future, but with the reassurance they can reduce their commitment.
‘Waiting until you are a few years away from retirement is likely to be far too late for most people to build up an adequate pension pot and achieve their goals.
‘That’s why early employer engagement and initiatives that nudge people to save sooner in their careers is key, such as ‘Save More Tomorrow’, where savers commit to increasing their pension contributions as their pay goes up.’
Duncan Smith, managing director of Mindlab, adds, ‘People think that they will save more of their income if they get a pay rise. Many think that this is the case when they actually increase their savings amount but this research shows that the proportion of income saved, on average doesn’t change. When our finances change for the better we need to focus on our future goals and how we can achieve them.’