Independent Financial Advisers Glasgow News & Guides

The top priority for people intending to retire this year is saving money to ensure they have enough to live on in retirement. Nearly six out of ten people (57%) said saving will be a top priority, according to new research from Prudential.

The insurer’s Class of 2012 study, which looks at the finances and expectations of those planning to retire this year, also found that women are more likely than men to prioritise saving during retirement – 62% of women will make this a priority compared with 52% of men.

Although saving money is a key focus, those intending to retire this year are still determined to have a fun-filled retirement. More than a third (36%) say that spending money on travelling the world will be a priority for them, while 43% will make spending money on enjoying themselves a priority.

Vince Smith-Hughes, retirement income expert at Prudential, said: “Today’s retirees are likely to spend longer in retirement than previous generations so it is encouraging to see that they understand the importance of saving money to ensure they can live comfortably. Saving shouldn’t be regarded as something that suddenly stops once you retire, and the current generation of retirees seems to be more aware of this than ever before.

“Saving as much money as possible, from as early an age as possible, is the best way to ensure you can afford a comfortable lifestyle in retirement. Consulting a financial adviser can also be an important step in helping retirees to make the most of their pension pots.”

New research published by the Institute of Directors (IoD), in association with Lucida, has revealed that the many people are choosing to save for their retirement with ISAs rather than pensions.

The trend is illustrated by the fact that the amounts paid into ISAs increases sizeably year on year, rising from £35.7 billion in 2007, to £43.9 billion in 2009/10, while employee and individual pension contributions peaked in 2007 at £25.6 billion, and fell to £22.9 billion by 2009.

This trend seems set to continue or even accelerate, with payments into ISAs jumping by almost £10 billion to a total of £53.8 billion in 2010/11.

The report, “Roadmap for Retirement Reform”, written by IoD pensions expert Malcolm Small, explores the scale of the challenge posed by an ageing population, a society habitually dependent on debt, low savings rates and high numbers of people with little or no pension provision. The key proposals put forward to address this situation include:

• Raising the state retirement age to 70 sooner than is currently planned – by raising the age to 68 in 2032, 69 in 2038 and 70 in 2044. The Government currently plans to raise the retirement age to 68 in 2046.
• Providing a single, flat-rate, universal, basic state pension, abolishing means-tested retirement income benefits such as Pension Credit.
• Radically reforming and simplifying the pension architecture, which has become hugely complex, unattractive and enmeshed in a forest of regulation.
• Developing a formal UK Government savings policy – the Government currently has no over-arching policy to encourage savings, despite the stark lessons in recent years on the danger of over-indebtedness

One in six people planning to retire this year will depend on the State Pension to fund their retirement as they have no other pension, new research from Prudential shows.

The figures come from Prudential’s Class of 2012 research, which provides insights into the financial expectations of Britons planning to retire this year.

Women are more than twice as likely as men to have no pension – 20% of women retiring in 2012 will depend on the State Pension compared with just 8% of men.

The average person planning to retire this year will look to the State for 34% of their income, with State Pension payments rising to £107.45 a week for single people. Company pensions (35%) are the second highest source of income, and the remaining 30% comes from a mixture of savings, investments, personal pension savings, part time work and money from family members.

The Prudential research also shows that one quarter of people retiring this year either overestimate by more than £500 a year what the State Pension pays, or simply do not know.

Regionally, people retiring this year in the Midlands are the most likely in the UK to rely on the State Pension (40%). This compares with a quarter (28%) of those in Scotland, who claim that they will be the least reliant on the state for their retirement income.

A report by Friends Life has revealed that more needs to be done to ensure women's long-term savings are not hampered by the impact of starting a family.

The latest Visions of Britain 2020 report has exposed a worrying number of women who are less clued up about pensions than their male counterparts, and the company is urging employers to do more to combat the issue.

The report has also found that almost half (49%) of women do not save into an employer-sponsored pension scheme. A further one in ten are unsure if they save at all.

Kim Clarke, Head of HR at Friends Life, commented:

"We believe that employers may well consider the short-term financial impact of female employees starting a family through supportive flexible working practices but what about the long-term impact? When women return to work they often go back part time in the first instance, meaning that the percentage of their salary that they can save is much smaller, while at the same time their outgoings have increased. Unless drastic changes are made, many women may find that starting a family could negatively affect their retirement pot."

Recent research has found that the majority of Brits (65%) continue to rely on the state pension to provide them with an income in retirement, and only 4% expect NEST to form part of their pension income.

The study, by unbiased.co.uk, also revealed that while the state pension topped the list of retirement income sources, almost half (47%) of Britons expect to rely on a private pension to play a part in their retirement provision, followed by a quarter (25%) who named ISAs as their retirement income source.

One in seven women (14%) expects to rely on their partner to provide an income in retirement, compared to only 5% of men. Only 41% of women count on a private pension to provide for their retirement (against a national average of 47% and 54% of men).

Karen Barrett, chief executive at unbiased.co.uk, said: “Planning for retirement is one of the most important things we can do to ensure we are financially secure in the long-term and as our research shows, there is a multitude of retirement savings options out there.  But not every option is right for everyone and it is important to realise that simply relying on the state to provide for you is not going to be enough. 

“We all have to take ownership of our own financial future and plan for our income in retirement accordingly, whether it is through just putting money into a savings account or actively contributing to a private pension.”

More than 10% of people who had planned to retire during 2012 are making alternative arrangements and putting off drawing their pension for the time being, according to the latest results from Prudential’s Class of 2012 research.

Of those deferring their retirement, a third claim they do not want to retire yet, while two thirds say they are putting it off because they can’t afford to retire as originally planned.

However, showing that giving up work before growing too old is still an aspiration for many, the average age of people planning to retire this year is 60 years old – a similar age to last year’s survey and seven months younger than in 2010.

Vince Smith-Hughes, Prudential’s retirement income expert, said: “One thing this year’s retirees have in common is actively making choices about when and how they will retire. Although many people think the idea of retiring as early as 60 is out-dated, the majority of this year’s retirees are defiantly sticking to that plan. It’s likely that many of these people will have accumulated benefits in final salary pension schemes that generate an acceptable income in retirement – perhaps signalling that the golden era of retirement for baby boomers isn’t over yet.

“It is, however, undeniable that there is a new retirement reality for a significant number of retirees. People are living longer, and for many, the very real prospect of a thirty year retirement is either unpalatable or unaffordable, hence the decision by many to continue to work. Retirement is also becoming a more opaque concept, with many people working part-time, either out of necessity or desire.

“To stand the best chance of having a comfortable retirement, which starts when you want it to, it’s important to seek professional financial advice on saving for a pension and on what post-work income options are available. Saving as much as you can as early as you can will help you to gain more control over your retirement."

More than half of corporate financial advisers think that up to 30% of UK workers could opt out of the government’s new auto-enrolment regulations due to be introduced from October 2012.

Independent research from Aviva shows that the majority (98%) of corporate advisers expect some degree of withdrawal by employees from workplace savings schemes they would automatically be enrolled into. Around 20% predict that half of all employees will opt-out, a further 59% forecast that there will be up to a 30% drop out rate, while only 2% expect there will be no drop out. Most worryingly though, half of all corporate advisers think that the largest proportion of opt outs will be in the 35 and under age group.

The research highlights the importance of engaging employees on the benefits of saving in the workplace early, particularly amongst younger workers, many of whom will be saving into a pension for the first time.

Of the top five reasons advisers gave as the main barriers to saving amongst the 35 and under age group, the largest proportion (80%) say they don’t think younger workers can afford to save, while:

• 72% say that they have other financial priorities
• 69% believe that they think they are too young to worry about their retirement
• 63% don’t think they trust pensions
• 47% say that they don’t think the younger employees understand the benefits of a workplace pension compared to other kinds of saving.

The widespread view amongst advisers is that younger workers live in the "here and now" and have other things to worry about at the moment, a view that is echoed by this age group themselves, whose main current financial goals are to buy a house (36%); pay off debts (34%) and pay off their mortgage (20%).

Nearly one in five of those planning to retire this year will do so with outstanding debts, according to new figures released by Prudential. The Class of 2012 research looks at the finances and expectations of those planning to retire this year, and found that the average amount owed by debtor retirees is £38,200.

The proportion of people retiring in debt this year (18%) has fallen slightly from 20% in 2011. However, the average amount owed has increased by more than £5,000 from last year’s figure of £33,100 per person retiring with debts.

Outstanding mortgages and credit card bills make up the bulk of the Class of 2012’s debt. Half of those with debts owe money on their home loan and more than half (51%) are struggling with outstanding credit card bills.

The results of the survey also give an insight into the effects of outstanding debt on the finances of a new retiree. On average, those planning to retire this year with debts will be making monthly repayments of £260, which equate to a fifth of their expected £1,290 a month income.

Paying off debt could take this year’s retirees an average of nearly four years and 8% of those who will still owe money when they retire in 2012 say that they will never be able to pay it off. One in four say that they will be making repayments of £500 or more a month.

Men retiring in debt this year are likely to owe substantially more than women, with average debts of £45,300 compared with £29,400 for women. Around 20% of men expect to have debts when they retire compared with 16% of women.

A generation of 'Wearies' – Working, Entrepreneurial and Active Retirees – could be forced to continue working into their seventies and beyond due to hardships caused by the looming pensions crisis.

Effectively ruled out of employment by age, they will set up their own businesses, according to the study for Friends Life by think tank Future Foundation. Many of tomorrow's OAPs will look to supplement their retirement savings by becoming self-employed in their later years.

Many are likely to supplement their income buying and selling goods on websites like eBay, while others will turn their front rooms into offices or cottage industry workshops or a nursery. Those with manual skills might set up gardening or home help businesses to make money helping neighbours, academics predicted.

Martin Palmer, head of corporate benefits marketing at Friends Life, said:

"We're expecting the traditional image of the pensioner with slippers and rocking chair to change completely.

"Many will not have saved adequately for a secure retirement and, with years of fiscal austerity taking their toll, by 2020 many people in their seventies simply will not be able to afford to give up working.

"Necessity is the mother of invention and Wearies will be among the most innovative and entrepreneurial contributors to the UK economy, despite their senior years."

People from across Britain were asked about their attitude to working in retirement as part of the study, entitled "Pensions: Crisis and Reforms".

Over half (51%) of those who are already retired said they would be prepared to do part-time work to boost their pensions. But the figure rises to three-quarters (75%) among those who are yet to retire.

The Minister for Pensions, Steve Webb, has promised to protect the pension pots of people who move jobs often by abolishing Short Service Refunds for defined contribution occupational schemes. These refunds allow individuals to get their pension contributions back – leaving them without a pension.

The Minister also committed to taking action to prevent people losing small pension pots. A recently published paper looks to address the complexities in the current system that make it difficult for people to transfer their pension pots throughout their careers into one big pension.

Steve Webb said:

"I am concerned that people are at risk of losing their small pension pots as they move from job to job. I do not want to see people who are doing the right thing by saving, ending up with very little for their retirement because the system is too complicated. I want to make it as easy as possible for people to grow big fat pension pots."

A highly mobile jobs market and the introduction of automatic enrolment will lead to around 4.7 million additional small pension pots in our pensions system by 2050.

With the average person working for eleven different employers over the span of their career it’s vitally important that barriers are removed to growing big fat pension pots.

Options for consultation range from small changes to encourage transfers, to an automatic transfer system where pension pots could either be consolidated in one or more ‘aggregator’ schemes or move with people from job to job.