Millions struggle to understand their most important source of income in retirement
Saving money for retirement is important because you’ll need a nest egg when you’re no longer working. The best way to guarantee an income when you’re in your golden years is to save and invest as much as you can now while you are still working.
For the majority of people, pensions represent our biggest single source of private wealth and a record number are saving more money in occupational defined contribution pensions. In short, pensions are more important to more of us than ever before.
Pension
landscape
However,
despite
these
record
highs,
pensions
remain a
mystery
to most.
Worryingly,
new
research
reveals
a
widespread
lack of
understanding
among
savers.
The annual study of the pension landscape from The Pensions Regulator reports record membership of occupational defined contribution pensions, at 23.4 million[1]. This is up from 21.7 million last year.
Biggest
driver
This
adds to
other
recent
data
highlighting
the
importance
of
pensions
for
millions.
In early
January,
data
from the
Office
for
National
Statistics[2]
reported
that
individuals
in the
UK hold
a record
£15.2
trillion
of
private
wealth
and
pensions
represent
the
largest
proportion
of this
figure
at £6.4
trillion.
This
exceeds
£5.5
trillion
in
property
and £3.3
trillion
in other
assets,
including
around
£2
trillion
in cash.
The need to close the gap between pension participation and understanding is now critical. Overall, auto-enrolment has been the biggest driver of participation into pension saving over the last decade. When it was introduced in 2012, only four in ten (39%) private sector workers were actively saving for their retirement. This figure is now more than 70%.
Conflicting
relationship
However,
it is
risky to
assume
that
this
participation
rate has
driven
clearer
understanding.
Despite
a
significant
increase
in
participation
rates,
the
proportion
of
adults
who
agree
they
‘understand
enough
about
pensions’[3]
has only
increased
by one
percent
point in
the last
ten
years
(from
43% to
44%).
Other research[4] has found a conflicting relationship between value and understanding of various elements of ‘wealth’. Seven out of ten (69%) Britons can confidently estimate the current value of their cash savings and two in five of them (41%) are very confident. This ‘confident’ figure rises to three quarters (75%) of those aged 55+. Cash savings represent around 12% of total private wealth in the UK.
‘Very
unconfident’
More
than
half
(53%) of
those
surveyed
could
also
estimate
the
value of
their
property
quite
accurately.
This
figure
rises to
61% of
those
who are
retired.
Property
represents
around
36% of
total
private
wealth
in the
UK.
However, despite pensions potentially being their biggest combined asset, only 39% of people could confidently estimate the value of their pension pot. One in ten people surveyed were ‘very unconfident’ about estimating the current value of their pension savings. Pensions represent about 42% of total private wealth in the UK.
Pension
participation
The
need to
close
the gap
between
pension
participation
and
understanding
is now
critical.
Over the
next
century
it is
estimated
that the
pensioner
population
in the
UK will
increase
from 12
million
to 20
million,
meaning
that
more
than one
in four
people
will be
pensioners.
Automatic enrolment has brought pension savings to millions. And the pension freedoms have given us unprecedented choice in how we can use that money when we reach age 55. But we risk sleepwalking into our retirement if we don’t understand how much we have in our pension pots, what those savings might look like as retirement income and how long we need that money to last.
Source
data:
[1]
DC
trust:
scheme
return
data
2021
to
2022
|
The
Pensions
Regulator
(Memberships
do
not
equate
with
individuals.
One
individual
can
have
multiple
memberships.
The
figure
of
23.4
million
excludes
‘micro’
occupation
DC
schemes
with
fewer
than
12
members).
[2]
Office
for
National
Statistics
[3]
Survey
by
Unbiased
and
Opinium
of
2,000
non-retired
UK
adults
in
June–July
2020
[4]
Aviva
Research
was
conducted
between
5–7
January
2022
by
Censuswide.
Surveyed
2,000
UK
respondents
(national
representative
sample).
A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE). THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.
THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION WHICH ARE SUBJECT TO CHANGE IN THE FUTURE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.
THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED. PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.
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