Pensions: Money Box caller talks impact of age differences
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Pension income and the concept of retirement may be rendered moot for many Britons over the coming years, as new research from Canada Life showed over a million UK workers (six percent) believe that they will never retire. Additionally, 17.1 million working adults (44 percent) think they will work beyond their state pension age, down 2.7m from 51 percent in 2020.
The research from Canada Life surveyed 2,000 UK adults and extrapolated the results to the wider population. The results showed the biggest concern that UK adults have when thinking about working beyond the state pension age is being unable to enjoy their older age (34 percent). A third (33 percent) are worried their health will deteriorate because they need to keep working, while over a quarter (27 percent) either need to or want to work, but are worried their health will make it difficult to do so.
Many Britons also do not seem to be worrying about how they’ll manage in retirement as they simply do not want to do so. Nearly one in four people (23 percent) wish to continue working because they enjoy the routine, while one in five (21 percent) say they enjoy their job and want to continue working.
Of those people expecting to work beyond their state pension age, 43 percent believed their pension would not be enough to retire fully. They suspected they would need to continue earning money and believed this was a big reason for postponing retirement. A quarter (22 percent) will continue to work as they are unsure how long their retirement savings will last, while 10 percent think they are prepared but said their current lifestyle means it’s too expensive for them to retire.
Andrew Tully, a technical director at Canada Life, commented on the results.
He said: “Despite over a million people thinking they will never retire, there is a considerable drop in the number of people thinking they will work beyond their state pension age. Understandably the pandemic has had a drastic impact on this, with many people reevaluating how they want to live and what they want to do in later life.
“Digging beneath the surface, there are a variety of reasons for working beyond state pension age, or not retiring at all. For some people the social side of work would be missed, but for others, financial considerations are a key driver. As an industry, we need to find ways of encouraging better engagement in long-term financial planning as a way to ensure that people are confident that they are building sufficient savings for retirement.
”Auto-enrolment has been an unqualified success but we need to think about how we encourage greater levels of saving, perhaps by introducing auto-escalation at the point of pay reviews. For example, the employee receives a pay rise and automatically a percentage of that goes into the pension as additional savings.
“Consideration should also be given to extending auto enrolment to workers who don’t currently get picked up, including low earners and the self-employed as soon as possible. This would help level up the pensions playing field.”
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How to keep your retirement plans on track
Fortunately, Mr Tully went to provide a number of tips for worried workers who want to ensure a comfortable retirement.
He said: “A basic rule of thumb suggests you should save half your age as a percentage of your salary to enjoy a reasonable lifestyle in retirement. So, if you are now 25, you should save 12.5 percent of your gross pay into a pension. If you are 40, it should be around 20 percent. These numbers are examples based on someone starting the savings habit today and includes both your contribution and that of your employer.
“If this seems like a lot of money, and might appear scary, starting as early as you can and saving regular amounts can make a big difference to the final outcome due to the ‘magic’ of interest compounding.
“If you can, take advantage of any employer ‘match’ for additional contributions you make into your pension.”
Taking a more active approach in how one’s pensions are invested could also pay real dividends down the line. Sacrificing a bit of time now adds years to one’s retirement years.
Mr Tully continued: “Keep in mind you might enjoy 30 plus years in retirement, so your pension needs to go a long way. The length of time you are saving, and the choices you make about where to invest can also have a big effect on the size of your pension pot.
“Don’t have all of your eggs in one basket, for example property. Balance your investment choices across asset classes. Take an active role in looking at your annual pension statements, don’t bury your head in the sand. Seeking professional advice will help in keeping your plan on track.”
He concluded: “Retirement can seem like a long way off, and therefore decisions around saving for later life can appear to be an easy decision to put on hold. Balancing financial priorities is also difficult but anyone hoping to rely on their state pension is unlikely to enjoy the retirement they’ve worked hard for.
“Living for today and hoping for the best for the future is not going to work out for most people. Taking control and putting aside a little now for the future not only creates a great savings habit but will also give you the best possible chance of financial security in your later life.”
This guidance will likely be needed by more people than initially expected as additional research from WEALTH at work showed many Britons are overestimating their financial ability but are not saving enough for retirement. A survey from the company of 1,025 UK adults found six out of ten people (63 percent) think their financial knowledge is either excellent or above average, 41 percent know they are not saving enough for a comfortable retirement.
The same research also found 16 percent of Britons don’t know if they are allowed to pay more into their workplace pension and 14 percent are unsure of how much their employer contributes.
Jonathan Watts-Lay, Director, WEALTH at work, commented on the results.
He said: “This shows it’s quite common for people to overestimate their financial ability. After all, people do not know what they don’t know.
“They might think their financial knowledge is excellent, or at least above average, but actually in many cases, are not saving enough for retirement and don’t understand how to make the most of their workplace pensions.
“Financial education and guidance in the workplace can ensure employees realise how valuable workplace pensions are and how to maximise their savings. For example, how they could free up money to ensure pensions are affordable.
“Many companies are now seeing the benefit of sourcing specialist financial wellbeing provides to help employees improve their financial future, covering everything from debt and money management through to optimising employer sponsored benefits and retirement.”
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