Prosperous retirement: Those who are confident tend to hold investments in addition to a pension and own their home.
Savers are split down the middle on whether their pensions will provide them with a secure retirement, new research reveals.
Some 52 per cent of people with a pension invested to fund their old age are confident they will prosper, while 48 per cent have doubts.
Young adults are the most optimistic about their financial prospects.
However, they are also more likely to fear that climate and social change will make a comfortable retirement impossible, according to Barnett Waddingham’s study.
The consultancy found that those who are confident tend to maintain investments in addition to a pension and own their home, advantages that are more common among male savers.
One in five feel confident because they are self-enrolled in a pension, although the minimum level of investment is unlikely to be enough for a comfortable old age.
And 8 per cent said it was because they had a more generous final salary pension to fall back on.
Among those who doubted their financial situation in retirement, the most common reasons were not saving enough, not earning enough, having no other savings or investments besides their pension, and still having to pay rent.
Recent independent research by Scottish Widows found that 21 per cent of people over 50 and 28 per cent of adults overall do not know how much income they will need in retirement.
Their average estimate of the income needed to be comfortable in old age was £29,000 a year per household. This is much less than a benchmark widely used in the pensions industry (see chart below).
Meanwhile, the Barnett Waddingham survey also found:
– A third of people who will retire in the next two years do not trust their financial security
– Young savers are the most confident in retirement: 71 percent of those aged 18 to 24 and 61 percent of those aged 25 to 30.
– The least confident people are people between 51 and 55 years old, of whom only 42 percent feel confident about their prospects.
– Beyond age 55, confidence jumps to 50 percent or more
– About 4 percent overall think they will never retire, a figure that rises to 8 percent among people ages 61 to 65.
The firm surveyed 2,000 workers over the age of 18 who have a defined contribution pension. These take contributions from both employers and workers and invest them to provide a pot of money at retirement.
Unless you work in the public sector, they have now mostly replaced more generous, gold-plated defined benefit (or final salary) pensions, which provide a guaranteed income after retirement until you die.
Defined contribution pensions are stingier, with savers bearing the investment risk rather than employers.
Mark Futcher, partner and head of defined contribution pensions at Barnett Waddingham, says: ‘There are two key areas of concern. First, a third of people who plan to retire in a couple of years reach that period of their lives without confidence that they will be able to live comfortably.
‘And most people who are confident do so because of other wealth, property or private and DB pensions. This is not of much use to most young workers, who tend to have low savings, lower prospects for buying a home, and DC-only work arrangements.
‘There are two main solutions that policymakers should pursue. The first is to improve the automatic enrollment system, expanding who it includes and increasing minimum contributions, including automatically increasing contributions with salary increases and after career breaks.
“The second is to focus on the cohort approaching retirement and work to ensure people can confidently envision their income and lifestyle after employment.”
Futcher says the burden should not and cannot fall solely on individuals, but he offers some suggestions to improve prospects for a comfortable retirement.
– Pay more for your pension, especially after career breaks.
– Check that you receive the maximum contribution from your employer, especially if you use a tiered structure.
– Use pay raises as an incentive to increase contributions, at a time when you won’t notice the impact on the amount you take home each month.
– Improve your knowledge by logging in to check your pension online, check the Government money help site or talk to a financial advisor.
How to manage your pension if you fear it will fall short
1) If you are worried about whether you have saved enough, investigate your existing pensions. In general terms, it is necessary to ask the following questions to the schemes.
– The current value of the fund.
– The current value of the transfer, because there could be a penalty for the transfer.
– If the pension is a final salary or defined contribution regime. Defined contribution Pensions take contributions from both the employer and employee and invest them to provide a nest egg at retirement.
Unless you work in the public sector, they have now mostly replaced the more generous gold-plated ones. defined benefit – average or final career salary – pensions, which provide a guaranteed income after retirement until death.
Defined contribution pensions are stingier, with savers bearing the investment risk rather than employers.
– Whether there are guarantees (for example, a guaranteed annuity rate) and whether you would lose them if you moved the fund.
– The projection of the pension at retirement age. You can use a pension calculator to see if you will have enough; They are widely available online.
2) You must add the expected figures to what you expect to receive in the state pension, which is currently £221.20 a week or around £11,500 a year if you qualify for the new full rate. Get a state pension forecast here.
3) If you’re tempted to merge your old pensions, read our guide first to make sure you won’t be penalized.
4) If you have lost track of the old pots, the The government’s free pension tracking service is here. Our retirement columnist, Steve Webb has a guide to finding lost pensions here.
Be careful if you search online for Pension Tracking Service, as many companies using similar names will appear in the results.
These will also offer to look for your pension, but they will try to charge you or hit you with other services, and they could be fraudulent.
Some links in this article may be affiliate links. If you click on them, we may earn a small commission. That helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.
