Independent Financial Advisers Glasgow News & Guides

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.

With just six months to go until the largest employers start automatically enrolling employees into pension schemes, Friends Life has revealed new research showing that 61% of consumers admit they are not confident in their own abilities to save enough to fund their retirement without government or employer intervention.

Just 39% believed they could save enough on their own, without being forced to save by the government or being auto-enrolled by an employer. 

The research also revealed that only 8% of respondents rate saving for retirement as their financial priority and less than half (48%) are making regular contributions into a work based pension at the moment. Around 19% don't have any pension at all, one in ten (11%) doesn't know how much they contribute to their pension and 35% save less than £100 a month.

When asked how they would feel if the government made it compulsory to save into a pension, nearly half (46%) said they would see it as a helpful way to ensure they got a decent level of savings. A quarter (24%) said they would view it as an additional form of tax that they wouldn't want to pay, while 30% said they didn't have any strong feelings about it.

Findings also revealed:

• 5% aren't sure whether they have a pension or not,
• 3% don't know if their employer offers a pension which they could be saving into already and 8% say they have declined to join their employer pension scheme,
• 33% say paying off debt is their top financial priority, and
• 15% say saving for a house deposit is the most important financial challenge to them.

Six months to go until Automatic Enrolment begins and new figures show that final salary pension scheme payouts will reach a record high and peak this year.

Statistics from the Department for Work and Pensions show that the average amount paid from Defined Benefit (DB) schemes will reach the highest ever level this year and the amount will fall thereafter.

The average DB pension in payment will peak at around £7,100 a year towards the end of 2012 and will fall to just above £2,400 a year by 2060, marking a significant shift in pensions saving.

Currently, around six million pensioners benefit from some form of DB scheme but only 10% of firms have final-salary schemes that are still open. Workplace pension reform will bring up to ten million people into pension saving from this year.

Starting in October, people working for the largest employers will be automatically enrolled into a workplace pension scheme. Smaller businesses will follow. Individuals, employers and the Government will all contribute to an employee’s pension.

The final building blocks for automatic enrolment have been put in place as the Government published its response to the consultation on the earnings threshold.

With just over six months to go before the largest employers begin enrolling eligible workers into pension savings, the response sets out that automatic enrolment rates for the next tax year will be aligned with tax and National Insurance thresholds. This will make it easier for firms who will not have to negotiate another layer of complexity.

Minister for Pensions Steve Webb said:

"The overwhelming response to our consultation was the call to align the automatic enrolment trigger with existing payroll thresholds. This will help firms make a success of these reforms, as they will be able to better understand who is eligible to be enrolled.

"These changes strike the right balance between getting as many people into workplace pension saving as possible and ensuring that we do not enrol some people who would not financially benefit from saving. People who are excluded from automatic enrolment will still be able to opt themselves in, benefiting from a contribution from their employer.

The new, single tier State Pension announced in the Budget will dramatically improve savings incentives for people on a low income."

The Government must review the rates each tax year.

The Government must act to help savers with small pension pots get better outcomes in retirement, the National Association of Pension Funds (NAPF) has said. Hundreds of thousands of small pension pots are already “stranded”, a problem that is likely to get worse after the introduction of automatic enrolment.

Under automatic enrolment, as workers change jobs it is likely they will build up multiple pension pots. Small pots can be burdensome for employers and pension schemes, and they may not offer the best value for money for savers.

A study from the Institute of Fiscal Studies jointly funded by the NAPF and the Economic and Social Research Council highlighted the full-scale of the problem. It showed that £1.4bn is already trapped in 700,000 stranded workplace defined contribution (DC) pension pots worth less than £5,000.

In its response to the Government’s consultation on small pension pots, the NAPF reiterated its call for a new way of thinking about DC pensions. Large scale, good quality trust-based pension schemes would secure better outcomes for savers and would also deal with the small pots problem. The NAPF called on the Government to set up a framework for new Super Trusts that will make it less likely that people will transfer their pension pots, and give them the opportunity to consolidate their existing pension provision.

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."

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."

Only 38% of working-age people - 11.6 million out of 30.4 million people - are saving into a private pension, the lowest level in the past ten years, new analysis by the Department for Work and Pensions (DWP) has revealed.

According to the DWP, this highlights exactly why automatic enrolment – introduced from October 2012 – is so critical.

The figures show a steady decline in pension saving between 1999/2000 and 2009/10, with the decrease being most dramatic among men and the under 40s.

While the overall number of people saving into a private pension fell from 46% in 1999/00 to 38% in 2009/10, pension saving among men fell from 52% to 39%. And among people aged between 20 and 39 years old pension provision fell from 43% to 31%.

The analysis also reveals a map of pension provision across the UK in 2009/10, with higher pension provision in the South East (43%), Scotland (42%), the South West (41%) and the East (41%), and lowest pension participation in Northern Ireland (33%), London (34%) and West Midlands (34%).

Women have more financial independence than ever, with increasing numbers in charge of household finances.

But though they may excel in budgeting for the family, new research shows women still lag behind when it comes to pensions.

A study by the Future Foundation for Friends Life has exposed a gulf in understanding across the genders with men more aware of how much their pension is currently worth, how much income they will have in retirement and whether they will be able to retire early.

The survey also showed men are more likely to realise they can change how much they save and where their pension is invested.

Experts said the study suggests that women face a "rougher ride" than men over coming years. It found that 59% of women were not saving for a pension, compared to just over half (52%) of men.

Nearly two-thirds of men (65%) said they knew how much their pensions were worth, compared to only half of women (50%), while more than two-thirds (68%) of men claimed to know what their retirement income would be compared to fewer than half (49%) of women.

When it came to where their pensions were invested, 48% of men were aware, compared to just 37% of women. And 59% of men said they understood they could alter contribution levels compared to only 39% of women.

Asked whether they knew whether their pension would allow them to retire early, nearly two thirds of men (63%) claimed to know compared to just 47% of women.

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.

The Government must not make a u-turn on its plans to start automatically enrolling all workers into a pension from next year, the National Association of Pension Funds (NAPF) has warned.

Almost one in two Britons (45%) are unable to say whether they opted for the default option when they last reviewed their pension, according to new research conducted by Baring Asset Management. This means they do not know how their pension is invested.

The first issue of the Friends Life Workplace Savings Index has revealed that women in most age groups have seen their pension contributions cut year on year.

More than a third (35%) of British adults who are yet to retire have stopped paying into their pension pots, according to new research by Prudential.

Public confidence in pensions has hit a record low in the ongoing fallout from the financial crisis, according to the National Association of Pension Funds (NAPF).

New research has found that more than one in three workers in the UK admit that they don’t have a pension, meaning that they will have to rely on the State Pension and any savings in retirement.