Pension saving – millions destined for an impoverished retirement

Pension funding is often down the list of priorities in life but not saving for retirement is a mistake. Research shows too many of us are unprepared and unsure of what we need to fund the non-working life we want for ourselves.

 Pension saving

Whether you want luxurious holidays or to watch daytime TV in retirement you need the pension pot to afford it

Ignorance is high – and not bliss – for many people wanting to have a financially comfortable retirement.

Over half of respondents to a survey carried out by the Pensions and Lifetime Savings Association (PLSA), equating to 18 million adults, said that they were not confident that they were saving enough into their pensions to let them live the lifestyle they want in retirement (56%). 24% didn’t know and 20% said that they were confident they were saving enough.

Men were more likely to agree that they were saving enough (27%) compared to women (14%). Mid-high income earners (£30,000 – £49,000) were more likely to feel confident in their savings (30%) compared to those in the mid-low (£10,000 – £29,000) (19%) and lower income band (less than £10,000) (13%). Homeowners were also more likely to agree than renters that they were confident they were saving enough (25% compared to 14%).

37% of people believe the Government has set the level of pension contributions to ensure that everyone will be comfortable in retirement while 34% disagreed and 29% didn’t know.

PLSA says that while minimum automatic enrolment contributions have risen to 8% with 5% being paid by employees and 3% paid by their employer when combined with the State Pension for many people it will still be insufficient to provide an adequate income in retirement.

Julian Mund, chief executive of the PLSA, said: “It’s clear that savers are still unsure about exactly what their pensions are worth and what this will translate to in terms of real income in their retirement years.

“We want savers to think about their contributions so they know exactly what they can do to ensure they have the retirements they want. It’s never too late to start thinking about your pension.”

Alex Brown, wealth management director at Mattioli Woods agrees: “What we see with clients is no matter how much they have, a small pension pot or a large pot, it’s same issue in that they don’t know if it’s enough – it’s a question of sitting down and working out what you need to live on. If you want to spend your retirement watching daytime TV it will probably be enough but if you want to travel the world you may need a big fund.”

Most people he says are more worried about what they are having for dinner than what they need to save for retirement – because more pressing matters take over.

“For a guy in his mid-40s with young children and a mortgage, while it may be important to plan it’s just not the highest priority.

“For those in their 30s it’s more about tax planning strategies, in their 40s it’s more about investment and then in their 50s they are a lot more interested in what they are going to get out of their savings and it is towards their 60s when they are really thinking about retirement.

“Having a feel of what you want to do and the cost of doing it is more relevant than just saving money blindly.”

Aviva UK also looked in to mid-life employees’ financial preparedness for later life and also found that nearly nine million people do not know how much they will need to save to afford a comfortable retirement while over five million mid-life employees do not know how much is already saved in their pension. 43% of people don’t know how much support they will receive from government and 26% don’t know at what age they’ll be eligible for the state pension.

The table below shows what savings might achieve what pension amount.

Projected value of savings for average employee by retirement age of 65

Amount saved by employee

(5% contribution of annual pensionable earnings)
Amount contributed by employer

(3% contribution of annual pensionable earnings)
Projected value of pension savings by 65 years old

(projected investment growth of 2.4%)
45£21,840£13,200£56,100
50£16,380£9,900£39,600
55£10,920£6,600£25,500
60£5,460£3,300£13,600

Source: Aviva UK, 2019. Figures based on assumed charges and rates of growth, which are not guaranteed. Assumes average salary of £28,000 pa, employee contributions of 5% of pensionable earnings (£21,864) and 3% of employer contributions and investment growth of 2.4% pa after inflation and an annual pension product charge of 0.75%.

 

Lindsey Rix, managing director of savings and retirement at Aviva said: “Millions of mid-life employees are flying blind, and fast, towards their retirement. At the same time these employees are calling upon their employers for help.

“Without a clear picture of what they currently have saved or might need to save for a comfortable retirement, our findings show many UK employees are approaching retirement with their eyes closed – with no realistic idea of how near or far they are from their destination.

“As a first step, mid-life employees who are mystified by their pension savings should try to get a clear picture of what they have saved so far and how much of an income this can provide them with over the course of retirement. For some, this may be a pleasant surprise, while for others, it could be the wake-up call that’s needed to spur them to take action. People whose pensions are in need of a boost shouldn’t be disheartened, however, as it’s never too late to save.

“Mid-life employees are the fastest growing employee population in the UK by age, and we urge employers up and down the country to consider introducing similar schemes to ensure they feel fully supported.”

Aviva’s Shape My Future tool can give an idea of what retirement income might be based on your current saving habits and let you see the possible effects of making changes.

Brown added: “It can seem daunting but once you know more about it, it’s not as hard as it seems. People don’t fundamentally change on retirement: if you were careful with money all through life you are not going to rush out and buy a Ferrari with your tax-free lump sum and travel the world first class.”

Further reading: Comfortable retirement and ensuring your pension savings survive you

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