The Pension Panic: 1 in 3 workers still fear they will never retire comfortably

New research from leading independent consultancy Barnett Waddingham (BW), part of Howden, reveals a widening retirement confidence crisis across the UK workforce, as a third (32%) of workers don't feel confident they will retire with a comfortable income.

Concerningly, this lack of certainty is most prominent among those closest to retirement. Almost half (48%) of workers aged 45-54 and 40% of those aged 55+ report a significant lack of confidence in their financial future. 

A similar study from Barnett Waddingham in 20242 found that 42% of those aged 45-54, and 37% of those aged 55+ were not confident that they will retire with a comfortable income. 

This worsening in confidence signals a growing issue in workers not engaging with their pension, and risking poorer outcomes as a result.

A lack of planning is also a systemic issue across the board. Over a quarter (28%) of the workforce have not set any goals for their retirement whatsoever – a huge leap from the 13% that said the same in BW’s 2024 study. Most worryingly, nearly one in five (17%) of those expecting to retire within the next decade have no retirement goals.

The findings also further evidence a stark gender divide in retirement preparedness. While over a quarter (27%) of men express concerns about their retirement income, that figure jumps to two fifths (42%) of women - who are notably less likely to have formal financial goalposts in place compared to their male counterparts,

Workers’ concerns are not prompting pension engagement. While well over half (58%) of the workforce is worried about losing track of their various pension pots or the total value of their savings, 19% of workers have never logged in to view their pension value. Just 27% check their accounts on a regular annual basis.

This lack of engagement is particularly acute for those on the cusp of retirement. Over a quarter (27%) of workers planning to retire in under a year have never logged in to view their pension value, and only 53% check their accounts multiple times a year during this critical final run-up.

Mark Futcher, Head of DC at Barnett Waddingham, part of Howden, told That's Business: "For many workers, retirement planning can feel a bit like staring at a foggy horizon - it's there, but the detail is hard to make out. Too many people are still approaching that horizon without a clear map of where they stand, or whether their current savings will carry them into the lifestyle they’re hoping for.

“Pensions needn’t be a mystery, and small, steady habit changes can help change the direction of travel. Checking your balance using projection tools, and increasing contributions after a pay rise are small course corrections that can make a big difference over the long haul. And where employers offer matched contributions, failing to take the full amount is like turning down free fuel for the trip - compounding into something far more powerful over time.

“But this isn’t down to individuals alone - employers and pension providers have an important part to play. More often than not, workers can be unaware of the full extent of support tools they are paying for, but not taking advantage of - like free guidance, pension transfer tools and more. 

"You should always take the time to understand the benefits your scheme offers, but equally employers and providers need to make those tools easier to find, easier to understand and easier to act on. Improving retirement outcomes is a shared effort, and when everyone pulls in the same direction, the journey becomes far clearer.”

https://www.barnett-waddingham.co.uk

Prudential study reveals one in six will retire with no pension

Prudential's Class of 2012 study has revealed that one in six people (that's some 16 per cent) planning to retire this year will depend on the State Pension to fund their retirement as they have no other pension.

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 per cent of women retiring in 2012 will depend on the State Pension compared with just 8 per cent of men.

The average person planning to retire this year will look to the State for 34 per cent of their income, with State Pension payments set to rise to £107.45 a week for single people from the 6th April 2012. Company pensions (35 per cent) 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 (26 per cent) of people retiring this year either overestimate by more than £500 a year what the State Pension pays, or simply do not know.

Vince Smith-Hughes, retirement income expert at Prudential, said: "While the State Pension is a safety net for pensioners in the UK, it should only ever be regarded as part of an overall retirement plan.

"For far too many people, the State Pension has become the default income option in retirement. Even those who have some private provision depend so heavily on the State that it makes up a third of their retirement income.

"Although State Pension levels will rise to £107.45 for single people per week on Friday, this will still only provide relatively low levels of income to people in retirement. It’s a weak safety net for those without any savings and the real income shock for many retirees will come when the gap between their current earnings and the State Pension becomes apparent.

"If people want to maintain their standard of living in retirement it is important that they start to save as much as possible as early as possible, and the vast majority should join company pension schemes where possible. Seeking early advice from a financial adviser should also be a prerequisite to helping people achieve the level of retirement income they want and need."

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

Independent trustee services or DIY? Time to get sociable!

With such far-reaching changes taking place within the pensions world these days, it's small wonder many employees now feel a certain amount of bemused detachment, no doubt interspersed with a liberal dose of confusion, worry and perhaps moments of panic! 

Who can blame them given the drip-feed nature of 24-hour breaking news often adding layers of misinformation instead of clarity? Whilst it's the duty of trustees to answer questions and allay any fears pension scheme members may have, all too often lack of time or effort gets in the way. The use of independent trustee services in implementing an effective communications strategy just might be a way forward.

Too expensive! Ah yes, the predictable response in these cost-cutting, austere times we all seem to be living in. Now what? Start a meaningful dialogue with the company's IT department for starters. After all, this is the 21st century, the age of Facebook, Twitter, email and so much more. Like as not, many pension scheme members will have their own Facebook page at the very least, probably a Twitter account too.

The company has it's own web site, which is good, albeit infrequently updated. But no Facebook page, no Twitter, no forum on the web site and an email address buried deep within an obscure page no one is ever liable to come across in a month of Sundays! What has the company been doing for the last decade?

The answer, of course, is missing out on some very effective channels of communication ideal for pension scheme members with all manner of queries and questions which have never been satisfactorily answered. Now is the time to put all of that right. It shouldn't cost an arm and a leg either, which is good news for the bottom line. Facebook is free and so is Twitter. And good forum software is readily available, often at little or zero cost.

Naturally, it makes sense for someone on the trustee board to take overall responsibility for social media content and communications. Initially, they'll have to 'manually' spread the word amongst employees, which can be achieved easily through a newsletter, if the company has one, or by sticking up details on the company's noticeboard. However this is achieved, don't expect an immediate rush of questions. It'll take time for employees to get used to the idea and to articulate their worries, concerns and the like.

But whatever the level of 'traffic', all queries must be answered in a timely manner. There is no good setting up such communication channels if no one bothers to respond. Interest will quickly fall away. And depending on the number of pension scheme members, the level of queries is likely to vary greatly, too, from maybe one or two a week to perhaps dozens. Who knows? The only way is to try it and see.

We are all lucky to be living now, at a time when the number of ways we can instantly communicate with each other has increased so dramatically. While 'snail mail' will always have a place within our lives, social media has changed the personal landscape like nothing else in history has done. Time we all realised its potential and embraced it fully.

Rocky ride ahead for UK pensions reforms?

Government plans to reform workplace pensions in the UK could be in for a rocky ride, industry experts are warning.

The changes, which will see employees automatically enrolled into pensions schemes, are set to begin in 2012 and will be implemented over a four-year period.

But millions of workers are likely to opt out of auto-enrolment, according to a survey carried out on behalf of the National Association of Pension Funds.

The NAPF is regarded as the leading voice in the UK pensions industry, speaking for some 1,200 pension schemes with a combined membership of around 15 million employees.

Based on survey findings, one in three workers are liable to look elsewhere for pension provision rather than stay in the scheme they'll be automatically enrolled into. That could amount to 3 million workers.

Nearly half of those who indicated they would opt out said the reason for doing so would be the cost of the contributions. Just under a third said they did not trust the government, while slightly over a quarter cited a lack of trust of the pensions industry itself.

Last month, at its annual conference, the NAPF announced it was setting up a summit of consumer groups, industry leaders, employer bodies and employee groups to look at pension fees and charges which it sees as a major obstacle to the success of auto-enrolment.

NAPF chief executive, Joanne Segars, warned people were wary of pensions and that was a big threat to auto-enrolment.

She said, “We’re alarmed that so many say they’ll reject the new deal, and the picture has got worse since the recession. Our society is sleepwalking into a crisis because it isn’t saving enough for its old age, and auto-enrolment is meant to be a big wake-up call.

“But there’s no point in bringing people into a pension if their savings are going to be eaten away by fees and charges which they can’t understand. They’ll simply walk away. The pensions industry has to be much more upfront about what it is doing. People need information about their pension in a form they understand. That means pounds and pence, not basis points and unit prices.

With auto-enrolment just around the corner, the industry needs to do more to help people engage with their pension. The summit will help forge a clear direction on transparency and communication.”

The figures form part of an annual confidence survey undertaken by the NAPF which suggests public confidence in pensions is at an all-time low.

Just under half of those surveyed said that compared to other ways of saving, they were not confident in pensions. By comparison, 42% said they were confident. This meant a pension confidence index of -6%, the first dip into negative confidence in the index’s four-year history. The index stood at +11% in 2009 and at +5% in 2010.

Ms Segars said, “Confidence in pensions has slumped at a time when it needs to be growing. It’s worrying that from next year millions of people will be auto-enrolled into a savings vehicle they have so little faith in. Politicians have to boost confidence in pensions, or people will simply opt out. We need a pension framework that the public can believe in and rely on.”

Is the pension protection scheme weathering the storm?

Apparently so, according to the Pension Protection Fund (PPF), which is also responsible for the Financial Assistance Scheme. Good news for troubled pension schemes and their members, independent trustees who must  undertake PPF assessment & FAS assessment and other pension-industry watchers.

Although PPF chief executive Alan Rubenstein describes the economic climate of the past couple of years as “challenging”, the PPF had sailed through troubled waters relatively smoothly.

Figures published for the financial year 2009/2010 show the PPF with a surplus of £400m as a result of strong investment returns and a reduction in claims by pension schemes eligible for PPF. Results for the last financial year, which have yet to be published, are expected to show further improvements.

In an upbeat, state-of-play assessment, Mr Rubenstein says, “The past two years have seen challenging times for the economy at large, as well as for the pensions industry more specifically. Financial crises, subdued growth, turmoil in the bond markets - we are all familiar with the story and the underlying causes.“But far from being tossed about on stormy financial seas and at risk of foundering on the rocks of rising insolvencies, the Pension Protection Fund has sailed through these troubled waters relatively smoothly.”

But Mr Rubenstein did sound a note of caution. He warned that the PPF's strong funding position was not something that could be taken for granted.

He said, “In an ever changing world, we need to understand our risks and plan our future funding, so that we can give everyone - members, levy payers and government - confidence that we will be around to pay the vital compensation we provide, not just for next year, or even the next ten years, but as long as we are needed.

That is why the funding strategy that we published last year is so important. This strategy charts a course over the next 19 years, as the risks we face evolve, toward a future in which the PPF can expect to be self-sufficient. That will mean a future in which the levy ceases to be a significant source of income for the fund, with our success or failure increasingly depending on our ability to manage our investments and risks together.”

In the meantime, said Mr Rubenstein, the levy would continue to be an important component of PPF resources. It was right that the way it was raised should be consistent with the PPF's approach to its funding strategy. However, the design of the levy also needed to be a better match with the expectations of stakeholders.

Mr Rubenstein added, “Our changes to the levy from 2012/13 aim to combine these two requirements and the responses that we received to our consultation on our proposals indicated we were on the right track. There was strong support for the broad thrust of our proposals, with stakeholders viewing them as a significant improvement on the current levy framework.

A key change from 2012/13 will be that we will aim to set the rules for the levy for a three year period, rather than changing the way the levy is calculated every year. A scheme’s levy will still vary depending on movements in its risk, which is appropriate, although we are also making changes to smooth the assessment of risks which should help make bills more stable and predictable. Together with the stronger emphasis on scheme funding in the new formula, we believe this gives schemes more control over the levers that influence their levy.”

The PPF raises some of its funding through the pension protection levy. The levy helps towards the compensation payable to members of schemes that transfer to the PPF. All UK defined benefit (final salary) pension schemes eligible for PPF compensation pay the pension protection levy.