A question that is often asked is ‘Are you putting enough into your pension for your retirement?’ According to Bob Champion of Later Life Academy, provider of training to financial advisers, the answer for the vast majority of people in the UK is probably ‘no’.
This may well be because many people expect to retire at a fixed pre-determined age. What they may not realise is that it’s not so much a question of ‘when I retire’ but more ‘when I can afford to retire’. There is a crucial calculation to be done concerning how much income will be required in retirement. For this, it is necessary to understand that spending in retirement is nothing like spending while working. For instance, there will be no more commuting costs but the house may need heating all day, instead of just when the occupants are not at work. More leisure time means more leisure activities and all that free time is available for travel, all of which needs to be paid for.
There are some general guides available to help individuals with these calculations from institutions such as the Department for Work and Pensions but there is little reliable information about what else can be used to fund retirement. For the man in the street the situation can look daunting. Pension freedom now gives all defined contribution savers unfettered access to their pots from age 55, at which point they are presented with a raft of different retirement options.
An annual retirement survey by Franklin Templeton Investments found that the majority of UK savers who have thought about planning their retirement have done so “in their heads”, shunning any formal planning or financial advice. Their research found that around 72% of the UK public had formed some idea of how they would retire but, of those, 70% had not written down a formal retirement plan - advised or non-advised.
Franklin Templeton warned of a "severe and chronic" lack of planning and said advisers were well placed to seek opportunities to step in to address any knowledge gap around retirement saving.
The firm’s second Retirement Income Strategies and Expectations (RISE) survey polled 2,003 adults in January 2016, almost a year after the government's pension reforms came into effect. The survey found that retirement planning inertia persisted among those close to their retirement: more than a fifth (21%) of 45 to 54-year-olds said they had not started a retirement plan and a further 7% felt they did not need one.
The findings also revealed the positive impact on well-being that having a retirement plan can have. The majority (68%) of those without a retirement income plan said they experienced some level of stress or anxiety when thinking about their retirement savings. In contrast, those with a written retirement plan seemed more content and more open to staying invested in the market longer term.
Franklin Templeton’s UK country head Ian Wilkins said:
"While most people undoubtedly put time and effort into seeking advice and a clear plan over their mortgage or insurance arrangements, it seems that retirement planning is falling by the wayside for a disturbingly large number of people.
This brings an opportunity for the financial adviser community to educate the UK public on the value they are able to add in helping people to meet their retirement objectives, while taking away a degree of anxiety people might have about their financial well-being once they finish work."