High Expectations On Private Pensions To Fund Retirement Income
It has been revealed that Brits are increasingly relying on their personal pensions to play a pivotal role in later life income, according to the latest Institute for Fiscal Studies (IFS) Report.
Using data from the Wealth Assets Survey, the IFS Report entitled ‘Retirement expectations, attitudes and saving behaviour: how have these changed during a decade of pension reforms?’ looks at how individuals’ retirement viewpoint and opinions has changed in the period 2006-2017.
In the last ten years the UK retirement savings landscape has altered dramatically due to extensive reform including the increased pension age for men and women; the ‘new state pension’ was introduced; the automatic enrolment scheme for employees into workplace pension has been implemented; pension freedoms were announced; and changes to public sector pension schemes too.
The key findings of the report include:
- Private pensions are increasingly expected by employees to play a role in providing retirement incomes – the proportion of private sector employees who expect an income from their pension in later life has risen from 63% in 2013 to 78% in 2017.
- Although confidence in retirement incomes has risen in recent years, levels of understanding of pensions and confidence in the adequacy of retirement incomes remain low. Only around 50 per cent of individuals revealed that they understand enough about pensions to make decisions about saving for retirement. While those individuals who believed that their income will give them an adequate standard of living in retirement increased by 11 per cent between 2008 and 2017.
- Saving outside of pensions has become more common since 2012, having fallen between 2008 and 2012. This is likely driven by changes in economic conditions – in particular, increases in household incomes and general levels of confidence. Those individuals whom reported being able to save as well in the last 24 months has risen from 46 per cent to 56 per cent between 2012 and 2017, following a small decline between 2008 and 2012.
- The average age at which men and women expect to retire has increased by more than 2 years in a decade but expected retirement length is broadly unchanged. Over the last 10 years, the average age at which both sexes in their 40s and early 50s age groups expect to retire has increased significantly. For men, the average expected retirement age increased from 62.9 to 65.0 between 2006 and 2017. The increase was slightly larger for women, from 61.7 to 64.2.
Emma Byron, Managing Director, Legal & General Retail Retirement comments on IFA’s research, she said:
“The Institute for Fiscal Studies report highlights a number of interesting trends from the last decade, particularly the lasting impact that automatic enrolment has had on consumer expectations. The ‘timing effect’ of individuals being brought into pension saving earlier in their life is significant but I also think it may be some time before we see the very real impact it has had on people’s engagement with their own retirement planning.
“While auto-enrolment has offered a great opportunity for millions of people to save for their retirement, it also runs the risk of making people complacent. It is a great initiative but the minimum contribution in auto enrolment will only allow consumers to ‘get by’ in retirement, which may not give them the life that they’ve envisaged for their later years. Many consumers may not be aware of this and assume their workplace pensions are providing a sufficient retirement income. We have effectively told people that they can be ‘hands-off’ in their approach to retirement planning. This is particularly concerning when the advent of pensions freedom asks consumers to be even more engaged at the point of retirement.
“I hope in the next ten years we see more efforts to make people engage with their retirement planning; before, at the point of and long after the decision to retire.”
For more information on the IFS report click here.