New data stories from Nest Insight reveal deep interconnections in people’s financial lives
We all have narrow horizons. When we’re trying to understand some aspect of human life – long term savings, say – we tend to focus as deeply as we can on this single topic. All too often, this is at the expense of the bigger picture. Sometimes, we need to zoom out to a wider perspective before we can really understand what we’re looking at.
At Nest Insight, our mission is to find ways to help low- and moderate-income workers to be more financially secure both today and in retirement. The retirement part of this turns out to be a hard enough problem on its own, thanks to a complex blend of financial and behavioural barriers involved in retirement savings. But all too often, proposed solutions to this problem have applied too narrow a lens, thinking only of how to get people saving at a sufficient rate to achieve a certain standard of living in later life.
The problem is, many people don’t have unlimited resources to put towards long-term savings goals – or at least, not without making sacrifices elsewhere. There’s a risk that saving enough to be comfortable in retirement could leave someone at greater risk of financial distress in the present day. That’s why we focus on financial security in the round, and not just in one aspect of people’s lives. And that means understanding the trade-offs that low- and moderate-income households need to make to save for retirement.
This requires understanding the complex interactions that exist between retirement savings, and all other aspects of the household’s balance sheet. But how to do that? At Nest Insight, we’re lucky to be able to study retirement savings data on the 13.7 million UK workers who’ve been enrolled into the Nest Pension scheme. This gives us a rich and deep understanding of how this group of people are saving for the long term. Yet it leaves us in the dark about how these savings behaviours are affecting people’s borrowing, spending and other savings.
That’s why, over the past few years, my colleagues and I have been using innovative data techniques to link Nest scheme data with data from other sources, while preserving the privacy and data rights of the individuals involved. This work has helped us, and our collaborators, unlock insights that had previously been impossible to find. In recent months, we’ve published studies showing that being auto-enrolled into a workplace pension can:
- have knock-on effects on people’s borrowing
- create imbalances between their short- and long-term savings
- drive persistent saving at fixed rates, even through significant economic shocks[1].
But one dimension has been missing from this work. Up to now, our retirement savings data work has come only from the Nest scheme. This means we’ve never had a full view of how people are saving right across the workplace pensions system.
That’s why we’re excited about today’s publication of the first findings from The Pensions Data Project (PDP), a collaboration between ourselves, four other large pension providers and the Pensions Policy Institute. The result of several years of mutual effort, the PDP is now using data matched across multiple providers to produce novel insights on how UK workers’ savings are distributed between multiple pots.
This has immediate relevance to policy development around key areas like reducing the proliferation of small retirement pots, and the set-up of pensions dashboards. But we believe the potential of this work goes even further. In future, it will help us build a more comprehensive picture of how low-to-middle income savers are building up assets for the long term.
By applying the wider perspective offered by our programme of data research, we’ll be far better equipped to deliver our goal of creating whole-of-life financial security for all.
Matthew Blakstad, Analysis Director at Nest Insight
In 2016, Nest established Nest Insight to ensure there was a truly robust public benefit research and innovation centre working to understand and address the challenges facing savers in achieving financial security in the round. Nest’s purpose is financial peace of mind for all, and Nest is a proud supporter and the home of Nest Insight.
[1] For an example of how these findings are being put into use, see this video from our collaborator, James Choi of Yale School of Management, where he spells out The Ripple Effect of Automatic Enrollment
