More than half of people aged 24 to 29 aren’t sure if they’ll ever receive a state pension when they retire, Interactive Investor findings show.
Concerns are mounting across all age groups that Chancellor Rishi Sunak and future governments will continue to meddle with state pensions, making it increasingly difficult for many to plan adequately for later life.
‘I’m not sure if there will be an AOW benefit by the time I reach retirement age. I hope so, but I just don’t know’, says a younger respondent.
“It’s not surprising that people’s faith is undermined and their tolerance increased when Chancellor Dick Turpin plays with pensions,” said an expert at Interactive Investor.
Fear: More than half of people aged 24 to 29 are unsure whether or not they will receive state pension when they retire
Confidence in the government to deliver on its pension promises is dwindling, exacerbated by the lack of clarity about the amount of AOW pensions people will receive in the coming years, the government said. Major UK pension survey.
One in five people who are still retiring say they do not know whether they will receive an AOW benefit. This uncertainty rose to 26 percent in people in their thirties and 53 percent in people between the ages of 24 and 29.
Moira O’Neill, head of personal finance, Interactive Investor, said: ‘Saving for retirement is an act of faith – it’s something we have to do all our working lives.
“So it’s not surprising that people’s faith is undermined and their tolerance stretched when Chancellor Dick Turpin plays with pensions.”
What will happen to the AOW?
The government has confirmed that it will suspend the ‘triple lock’ for the annual increase in the state pension for one year.
Huge government borrowing and economic disruption caused by the pandemic have prompted the government to take the step.
Average income has also increased by 7.3 percent this year. Under the triple lock, this increase would translate into a 7 percent increase in the state pension. The government considers such an increase unfeasible in the current economic climate.
The triple lock refers to the idea that state pensions increase each year in line with the highest of these three measures: (1) a flat increase of 2.5 percent; (2) Average earnings growth, measured from May to July of each year; or (3) inflation, measured in the year from September of each year.
The government’s suspension of the triple lockdown in the coming year will have a significant impact on the amount of state pension retirees will receive.
Nearly half of the more than 10,000 respondents admitted they are concerned about running out of money in retirement, potential declines in stock values and rising living costs.
And in the realm of employment or personal pensions, people are increasingly concerned about the prospect of further tax changes on later life savings, with issues surrounding lifelong benefits being a particularly thorny issue.
“The possibility that Lifetime Allowance will be further reduced if inflation rises is insane,” one respondent told Interactive Investor.
In March last year, the Chancellor confirmed that: the lifelong supplement, which refers to the money you can have in pension without paying tax, remains on £1,073,100 instead of rising in line with inflation.
“Many committed long-term investors see the lifetime benefit as a heist and with the Treasury repeatedly signaling more tax bills on pensions, they’re getting even angrier,” said Interactive Investor’s Ms. O’Neill.
As uncertainty looms, many people are still surprisingly optimistic — perhaps, in some cases, too optimistic — about how much money they’ll have on all of their retirement pots when they retire.
Twenty-one per cent of non-retired people said they expect to have at least £1 million in their pension pots when they retire, while 13 per cent said they expect to end up with between £700,000 and £999,999.
But at the other end of the spectrum, 6 percent think all their pension pots will be between zero and just under £20,000.
Nearly half of people said they saw retirement as a time to enjoy financial freedom and independence, with more and more people making travel their top priority once they stop working.
What size will yours be? 21% of people think their pension pots will be at least £1 million
In terms of how many pension pots people have, the list seems to get longer as people change jobs and careers more often.
Sixty-six percent of respondents who were yet to retire said they had more than one pension pot, while 15 percent claimed to have more than four.
One in 17, or 6 percent, of those still retiring admitted they had no idea how many pension pots they had.
In her maiden speech as chair of the Pensions and Lifetime Savings Association this week, Emma Douglas warned that Britain is ‘entering into a pension crisis’ because people are unable or choose not to set aside enough money for later life.
Ms Douglas said: ‘The savings deficit is a major social problem, the current amount of money going into long-term savings, even with automatic enrollment at 8 percent, is insufficient for most and we are entering a pension crisis.’
Do you have a collection? 15% of people said they currently have four or more pension pots
How much should you retire from?
Couples will now have to find an extra £2,200 a year to maintain a comfortable retirement lifestyle post-pandemic, after pension industry guidelines on spending expectations were revised in the wake of the pandemic.
It means couples would need an additional £54,400 and a total pension savings of nearly a quarter of a million pounds to enjoy a pension of £8 bottles of wine, two annual holidays to Europe and a restaurant budget of £500 a month, according to the PLSA’s latest guide to living standards before retirement.
The survey also revealed how spending priorities had changed, with retirees now wanting to spend more on dining out and haircuts, and pushing for a Netflix subscription.
It comes as Britain faces a cost of living crisis, while winter energy bills are skyrocketing. The Bank of England expects inflation to rise above 4 percent by the end of the year and supermarkets have warned of a 5 percent price hike.
The PLSA said about half of single workers are on track to expect a lifestyle between minimal and moderate — and couples who can share the costs will be higher in this range.
Tom Selby, chief of retirement policy at investment brokerage firm AJ Bell, added, “If a moderate or comfortable standard of living after retirement is a major goal, you may need to think about saving a little more in your retirement if you can afford it.”
Budget forecasts for pensions
On October 27, the Chancellor will unveil his final fall budget, and any raids on pension pots and associated tax breaks will be heavily scrutinized.
Raj Mody, Global Head of Pensions at PwC said: ‘The government has already announced the suspension of the triple lock guarantee on state pensions. Maybe next year we will see similar actions again as the current wage patterns continue.’
Many industry experts have urged the Chancellor not to proceed with any further reductions in either the Lifetime Allowance or the Annual Allowance.
But given the huge sums the government has borrowed over the past year and Mr Sunak’s desire and need to bolster the treasury, the future for pension savers remains far from certain.
According to experts from Handelsbanken Wealth Management, there have long been rumors that the pension deduction in its current form could one day be phased out. A single flat rate of possibly 25 percent could be introduced at some point, it believes.
“This would be beneficial for base rate taxpayers who get a 20 percent discount, but a restriction for higher and additional rate taxpayers who might consider increasing contributions,” said Christine Ross, client director at Handelsbanken Wealth Management.
Mr Mody of PwC also believes the Chancellor may be able to address issues with the automatic registration of the self-employed.
He said: ‘A continuing concern is how self-employed people are being excluded from the automatic retirement savings system, allowing salaried employees to take advantage of additional company contributions towards their pensions.
“Something to watch out for in the coming budget is a pension system where the government could encourage self-employed people to save for the long term.”
Reports have also surfaced suggesting the government wants to loosen the 0.75 percent cap on annual management fees. The cap was introduced in 2016 to help automatically enrolled employees ensure their pension pots weren’t being eroded by skyrocketing subscription fees.
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