Homeownership and a lack of saving are the two main challenges facing British people trying to put money into a pension.
That’s according to the work of the Lifetime Savings Initiative, a joint project between the Pensions Management Institute (PMI) and asset management giant Schroders.
Speaking at the PMI’s annual conference this week, Ruston Smith, chair of the PMI’s board, told delegates that the initiative – set up 18 months ago – had gathered data both internationally and around the UK from over 60 organisations.
Gareth Tancred, the PMI’s chief executive officer, said one in four households had low financial resilience and 46% of households had less than £1,000 in savings.
“In the next 20 years three times more people at retirement will be renting than owning a home,” he said. “You will need 9% of your pension just to meet the cost of your rent, so we have got a problem there we are storing up.”
Separate research by the Pensions Policy Institute and more recently from Standard Life has highlighted the potential impact of renting property in retirement. Standard Life estimated that retirees could need as much as £400,000 more in savings to cover rental costs.
Balancing pensions, savings and investing
Ronan O’Riordan, head of UK institutional business development at Schroders Solutions, said there was a disconnect around the perception of pensions and savings.
“Around 40% of people said they couldn’t afford to save, but a lot of those don’t have unsecured or problematic debt,” he said.
Charlotte Cartwright, a partner at law firm Eversheds, added that auto-enrolment had been successful because it benefited from general inertia around pension saving. However, Cartwright also said a “positive culture needs to be created around pensions” and inertia was not the complete solution.
Rachel Harris, head of defined contribution and retirement solutions at Schroders Solutions, said any changes to encourage pension saving needed to be inclusive and take into account cultural and gender differences.
O’Riordan emphasised that the pensions industry needed to talk in a language people understood – and suggested even “ditching the word pensions altogether”.
The Lifetime Savings Initiative is currently working on a white paper with more formalised solutions.
James Barnham, executive chairman of Schroders Solutions, said: “We need to try and help solve this as an industry, so we need all parts of the industry to come together. Please get involved. The more people that get involved the more likely to be successful we are.”
