In an employment arena where the rules of the game seem constantly to be changing, and certainly the notion of a job-for-life almost feels like a myth from a far and distance land, one supposes it shouldn’t come as a surprise that 15 pct of British adults have declared they never intend to retire – so why does it feel so ominous? When people literally plan to work to death shouldn’t it?
According to new research from Close Brothers Asset Management (CBAM) on the state of retirement investment amongst British adults almost 32 pct of adults are stated they will not have enough funds to live on in their retirement, and intend to work up until death, but, almost 32 pct are failing to make investment plans that will help support them during this latter stage.
The significant declaration that so many see themselves perpetually on the employment treadmill may, in part, be due to data that shows amongst those surveyed that 35 pct actually won’t have enough funds in pension pots to retain their current lifestyles; meanwhile, 27 pct said they wouldn’t be financially equipped to cover emergencies during retirement. Despite this, 36 pct maintain they don’t plan to increase their contribution to any investments for when they do retire.
Analysts in this space cite confusion as a key factor as to why people haven’t subscribed to effective retirement planning. The wide range of pension products out there have left one in five British adults admitting they’re not sure what pension option is best for them, while 26 pct have said they find changes in UK pension legislation overwhelming.
CBAM added that people’s confusion may have stymied saving, while preventing them choosing the right products to meet their retirement needs. This could be evidenced by the fact that 27 pct of those who haven’t yet retired are currently invested in a cash ISA, while a quarter has opted to use property investment – including their current residence – which perhaps are perceived as relative safe havens to support them in their retirement.
David Newman, head of pensions at Close Brothers Asset Management said: “Closing the gaps in both pension saving and knowledge is paramount. Auto enrolment has meant that more people are now saving into pensions, but there is clearly a significant shortfall in both the number of people saving and the amount they are saving for retirement each month. Putting aside the bare minimum will not guarantee that the next wave of retirees will have the necessary income in retirement. Working in later life should be a choice not a necessity, and it’s a concern that around one in seven people expect never to retire.”
During the Conservative government’s 2016 budget, Chancellor Philip Hammond announced the offering of the Lifetime ISA (LISA), which was effectively introduced in April 2017.
The LISA offers adults aged between 18 and 39 the tax free opportunity to can save up to £4,000 a year, either as a lump sum or by putting in cash when you can. The government then adds a 25 pct bonus on top of that sum.
While the introduction of the LISA hasn’t yet had the impact the government hoped, according to CBAM, it seems set to grow in popularity. However, CBAM research shows that just 4 pct of those aged 25-34 currently invest in a LISA, and only 3 pct of 18-24 year olds. But, those who have stated they plan to rises to 14 pct and 18 pct respectively.
Newman said “Confusion… is only going to increase as we see products like the LISA become more widely known. Part and parcel of saving smartly is doing so via the correct vehicle – knowing which will bring the best tax benefits, includes contributions from employers, or is designed for long term investment. Bridging this knowledge gap is central to the long term financial health of prospective retirees.”