Julia Peake, Technical Manager, Nucleus, looks at the results of the company’s recent survey among retirement savers.
Nucleus recently completed its third piece of research into how people are feeling about their retirement given all the current changes happening.
In this article, we examine some of the key findings which affects all of us, in the hope that bringing these issues to light could help shape some future conversations and change behaviour.
You may, (or may not) be surprised to hear that only 26% of adults feel confident they will have enough money to live comfortably for the rest of their lives, down from 34% last year. This drop can be correlated to the decline in confidence in the current government and what feels like constant changes to pensions and tax rules, concerns about the cost of living and lack of understanding the financial systems, we deal with every day.
Those aged 35-54 have the lowest confidence, as they are less likely to have defined benefit pensions and as auto-enrolment was only introduced in 2012, many have not felt the full effects of this benefit.
Of those who are paying into a pension, the majority are contributing between 5-10% of their income, which is not enough for a comfortable retirement. And while many recognise the need to start saving early in life, the cost of living hampers their ability to contribute more.
There continues to be a stark difference in the ability of men and women to save for their future. Auto-enrolment has improved the situation somewhat, but the continued gender pay gap and the fact women are far more likely to take career breaks to care for children and elderly family members, means this can impact on their ability to save, not just into pensions but other saving vehicles as well. Women are less likely to have a private pension (22%/30%), cash savings (25%/35%) or an ISA (28%/36%) compared to their male counterparts.
The lack of understanding around the State Pension with almost half of respondents believing their National Insurance contributions go into a personal pot to fund their own pension is worrying. Additionally, more than half of individuals believe the State Pension won’t exist in its current form, while a quarter think it may disappear altogether within ten year. This again highlights the lack of trust in the current government as well as a lack of information and financial education available when it comes to understanding, what is for most people, the cornerstone of their retirement plans.
68% of people agree they’d be more confident about retirement if they’d learnt more about financial planning and investing when they were younger. This is especially true for those cohorts aged 25-34 (73%) and 35-44 (74%), where they agreed that people should at least be starting to think about retirement planning. We have recently seen announcements from the Education Secretary that the Government is looking to modernise the school curriculum and introduce, from early on, financial literacy to give life skills and help people make informed choices in later life.
This should hopefully lead to more people understanding the importance of regulated advice. Our research showed just 18% of people are engaging with paid-for financial advice/planning or have done in the past.
You only need to look at the complexity around the proposed changes bringing unused pensions into the world of inheritance tax (IHT). Even for those working in the financial services industry, it’s a lot to comprehend and we found our respondents felt the same, with nearly half saying they are worried about this. We also found that people were concerned with potential changes to pension tax-free cash with 68% believing making changes to this would be unfair.
To help ease some of these concerns the Independent Pensions Commission, has been created to help safeguard the long-term future of the UK pensions system and make recommendations to ensure it is strong, fair, and sustainable for all. However, we found only 16% believe it will achieve its aims, which goes to show the lack of belief many have in the current system, with pensions having been used as a political football for the past few years. It’s difficult to make a meaningful plan when the rules keep changing and becoming more complex.
At a time when confidence is so low, being able to navigate through the noise and rumours and build confidence is paramount. Now is an ideal opportunity for us to speak to your family and friends about these changes and if they don’t already know, talk to them about how working with finance professionals can help them achieve their financial aims.
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