But most people don’t seem to grasp just how much money they will need to maintain a reasonable standard of living.
Pensions Awareness Day in the UK was on Sunday 15 September. It is an initiative to help people grasp the nettle when it comes to retirement planning.
The campaign has highlighted three fundamental problems:
- People are not well informed;
- Planning for the future requires difficult calculations; and,
- People suffer from behavioural biases.
So, what can the financial services industry and employers do to help?
A stab in the dark
Mark Futcher, head of workplace wealth at independent consultancy Barnett Waddingham: “As we move towards the five-year anniversary of pension flexibility, the impact of the increased choice and complexity when it comes to pension schemes is yet to be fully realised.
“When choosing between annuities, draw-down, and taking all the money as cash, people need to weigh up a wealth of factors including how long they will live, the investment environment, the geopolitical situation, their future health and long-term care needs.
“Making the wrong decision at retirement can easily waste 10 years’ worth of contributions.
“Companies pay a lot into employees’ pensions over the years so it’s puzzling why they would want to see them waste it on a stab in the dark at retirement time; it is their responsibility to guide their employees, communicating and clarifying the options available to members, especially at the most crucial stages.”
No room for complacency
Nearly a quarter (23%) of those aged over 55 admit that they never check on the value of their pension pot, according to Close Brothers.
Jeanette Makings, head of financial education at the merchant banking group, said: “A workplace pension is a significant part of an employee’s benefits package and employers can play a key role in helping their workers to understand the value of this benefit and to encourage continuous engagement.
“By taking simple steps, such as offering retirement planning calculators; using clear, simple language and layout in pension statement providing access to financial education. Employees can improve their understanding, see how to take control and see the benefits of being more proactive with their retirement savings plan.”
Budgeting for care
A quarter of those surveyed by Fidelity had given no thought to how they will fund long-term care, with 29% of those in the 70s expecting to rely on the state pension to fund the cost of their care in old age.
Emma-Lou Montgomery, associate director for personal investing at Fidelity International, said: “Health, wealth and happiness has long been the prescribed recipe for a good life. But as we know all too well, the growing cost of care can have a knock-on-effect on our finances.
“When it comes to health, we aren’t always in control of what happens, and while we are living longer and spending more years in good health, the number of years we live in poor health has also increased.
“With a longer time spent in retirement than ever before, it’s important to make sure that while you are in full time work you are contributing as much as possible into your pension to remain financially secure throughout your lifetime.”