Aviva research highlights “pension preparedness vacuum”
Alarming new research from Aviva has highlighted the extent to which the United Kingdom may be sleepwalking into a retirement income crisis.
Aviva found that:
- Only 47% of people in work don’t know how to plan for retirement
- Only 28% of people feel like they know how to manage their pension as they approach retirement
- Only 27% are confident they know what a “good” amount in their pension is for someone their age
- Women are almost twice as likely as men to feel completely “on the back foot” about retirement planning
- Women are more than twice as likely as men to be unaware of how to manage their pension as they approach retirement
Many aren’t thinking about retirement at all
Perhaps most worryingly, Aviva’s research found that 42% of workers haven’t even started thinking about retirement. Furthermore, 39% of workers aged 40 to 54 admitted they weren’t thinking about retirement. While the state pension age is likely to keep increasing towards 70 in the next 20 years, people will still have the option of withdrawing money from workplace pensions in their late 50s. However, the lack of retirement planning means that drawing money from a pension and gradually winding down our working lives won’t be an option for many.
Aviva found that 74% of 40- to 54-year-olds felt like they would have to work for “much longer” before being able to retire. This figure rises to 79% among 25- to 39-year-olds. However, most of these people have the power to change their pension prospects.
One contributing factor to these figures is that while auto-enrolment has been around for nearly a decade, continuing change and ambiguity around them means people are increasingly confused about how to maximise their pension prospects. Unfortunately, this confusion leads to paralysis and a lack of action, rather than inspiring people to learn more about how they can better plan for later life.
Aviva calls for action from employers
Aviva believes that proactively helping workers better understand pension planning is necessary and wants employers to help employees plan and eventually transition into retirement.
59% of employees told Aviva they’d be open to receiving pension planning support at work to help them understand what they needed to save to maintain their living standards in retirement. In addition, 23% said they’d like to receive support on managing their pension as they get closer to retirement, and 20% wanted to know more about the different pension options available.
Notably, 51% said they felt they would need support to transition into retirement via flexible or part-time working. In addition, 41% are also worried about being able to retire when they want to.
In a press release highlighting the outcomes of the study, Mary Harper, Managing Director of Aviva Financial Advice, commented: “It’s very easy to put thoughts about later life to the back of your mind, but investing time in thinking and planning ahead can make a world of difference to your options. Although you may have to pay for it, evidence suggests that people who access financial advice are, on average, tens of thousands of pounds better off in the long-term, but it’s not always something people feel they can relate to, benefit from or feel is designed for people like them.
“However, whether people are working longer out of choice or necessity, many are crying out for greater help from their employers to help them manage their finances ahead of retirement. Auto-enrolment has been a huge success in giving more people access to pensions, but it’s what you do with your pension that really counts.
“It’s important people have sufficient financial knowledge to make the right decisions for them at the right time. Our research shows that employers have a key role to play in filling the pensions preparedness vacuum. Access to a combination of information, guidance and advice via the workplace can help people make the most of their money for the long-term.”
Aviva has also called for the creation of a Living Pension accreditation. Aviva wants this to be the pension equivalent to the living wage to help employers ensure their workplace pension schemes ensure a minimum standard of living once employees retire.
Aviva’s five actions for individuals
As well as calling on employers to do more to help employees gain the knowledge and confidence to manage their pensions, Aviva has also provided a five-point checklist that people can follow to help them better prepare for retirement.
- Knowing where to start
The first step is to understand your existing position. Check existing pension statements, determine when you’ll be eligible to receive the state pension, and how much state pension you’re likely to receive.
- Maximise your workplace pension entitlement
If you meet the auto-enrolment criteria, your employer must offer you a workplace pension.
Pension contributions are subject to tax relief, and your employer is obliged to top it up by at least 3% of your pensionable earnings. One vital thing to remember is that you never lose the cash in a workplace pension (subject to how it’s invested). So even if you leave your job, you’ll still have that pension pot in your name.
Even if you don’t meet the criteria for auto-enrolment onto a workplace pension, you may still have options available, so speak to your employer about what’s available.
- Use online planning tools
Aviva is directing people to its online retirement planning tool, but various similar resources are available online.
If you already have a workplace pension, the pension provider may already have tools you can use and may even show you your pension data and outlook each month as your contributions accumulate.
- Use the Pension Tracing Service to find old and lost pensions
On average, we switch jobs 11 times during our lifetime.
That means we can easily amass several workplace pensions, some of which we might forget about as the years pass. In the UK, there is an estimated £19.4 billion sitting in 1.6 million lost pensions; could one (or more) of them be yours?
You can use the government Pension Tracing Service for assistance in tracking down old and lost pensions. Once you’ve identified any old pension pots, you should check your options for consolidating them in one place.
- Ask what support your workplace offers
While Aviva’s research found employees wanted support from their employers, many employers likely do offer it; it’s just that employees aren’t aware of it. Ask your employer or workplace pension provider what resources they provide to help you plan for your retirement. Many offer workshop sessions or free appointments with a financial advisor, so be sure to take advantage of whatever your employer makes available.
Remember: It’s never too late to start saving
While the level of pension preparedness across the UK is of great concern, it is never too late to start saving.
Aviva analysis shows that a 40-year-old earning the average UK salary of £30,000 could still build up a pension pot of £92,000 before they reach retirement age, which could provide a valuable income alongside their state pension when the time comes.
Laura Stewart-Smith, Head of Workplace Savings and Retirement at Aviva, commented: “Our findings show there is a major vacuum in retirement preparedness which businesses can help to fill. We’ve seen the lines between home and work become blurred beyond recognition for many people during the pandemic. As we look ahead to the future, employers will play a key role in helping people to manage their workplace pension to their best advantage.
“We are calling for a Living Pension accreditation to help give people confidence that they work for an employer who will help provide for their future wellbeing, as well as their immediate needs. When it comes to saving, you need to understand where you’re starting from, where you want to get to and the actions you need to take to get there. A more personal approach to financial education at work can give more people the opportunity and support they need to take positive steps to improve their financial wellbeing.”
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