The Pensions Regulator this week said pension saving is becoming "the norm", with two-thirds (66%) of employees now active members of a pension scheme, compared with just 47% in 2012, but a former pensions minister warned that many of the six million people who have automatically enrolled in a workplace pension are saving far short of what they will need when they retire.
Saving for retirement is still as important as always, if not more so following the EU Referendum vote for Britain to exit the EU, as we all need to take responsibility for our future financial security. Over a lifetime of pension saving there will be market booms and crashes, but those who save steadily into a pension, topped up by tax relief and employer contributions where available, will have a better outcome than those who do not save. Non-savers will rely on whatever state benefits remain when they retire. There is no substitute for long-term saving when it comes to securing a comfortable future.
A report by Royal London (Pensions Through the Ages: Feeling the Squeeze), is aimed at better understanding how to help 35 to 44 year olds better prepare and save for their retirement The report has identified that millions of people are neglecting pension planning as they struggle to pay bills and meet everyday commitments. They identified four clear groups from the 2,500 people between the ages of 35 and 44 surveyed. The firm labelled their attitude to their finances as ‘squeezed’ (34%), ‘manageable’ (37%), ‘comfortable’ (23%) and ‘unmanageable’ (6%).
The 34% ‘squeezed’ missed out on both the full benefit of being in a defined benefit (DB) pension scheme and from auto-enrolment into a workplace pension for their entire working lives, leaving them financially squeezed. They are focused on paying for the short-term ‘here and now’ items: paying bills and providing for their families, whilst keeping mid-term goals, such as saving for a property and having something for a rainy day as their next priority. Less than one in 10 stated that retirement planning and saving rank high on their priority list.
One 40 year old said:
“The problem is, when you’re young you don’t really think about retirement because it seems such a long way off. I’m not saving enough towards my retirement, but I do think there will be opportunities in the near future to increase our savings as we pay off some of our short term loans and debts. I would really like to have access to more advice around what saving products I should be using – it’s all just too confusing and there are so many options it’s hard to know what would be best for me.”
Fiona Tait of Royal London confirmed that an inability to commit to long-term savings stems from a lack of knowledge rather than indifference. The study showed 92% of respondents understood the need to invest but felt limited by lifestyle constraints.
“Finding ways to help them achieve a step change to improve their position is key; if left to do nothing, many believe they will either remain ‘squeezed’ in retirement or worse, be in the position where their finances are unmanageable and rely on state benefits. No matter now big or small the saving, it all adds up. Taking action when the opportunity arises, even if it is in five to ten years’ time could still fundamentally change peoples’ financial position in retirement. Advisers are well placed to help explain how.”
Maybe the trick for financial advisers is finding out how to connect to these people who, by their own admission, are struggling to make ends meet, and would consider professional financial advice out of their reach.