More than a third of people have never estimated their income needs for later in life, and 38 per cent of individuals are not confident about their ability to retire comfortably, according to new research by provider Aegon.
The study of 946 individuals showed that many are unprepared for retirement, despite the introduction of auto-enrolment in 2012.
Getting that message across is one thing – getting them to actually do something is quite a different story
Jon Parker, Redington
Thirteen per cent of those polled said that they do not have any pension savings, according to the research. Moreover, 36 per cent said they have never estimated their income needs for retirement, putting themselves at significant risk of being unable to maintain their existing lifestyle – according to the study.
People unprepared for retirement
Over a quarter of respondents admitted that they do not how much pension savings they have amassed, and this figure increases to 38 per cent for those aged 65 and over.
The research also found that just 17 per cent of those aged 55-64 hold more than £300,000 in pension savings – which Aegon said is the amount that someone on average earnings would need to maintain their current lifestyle in retirement.
Aegon's pensions director Steven Cameron said it was worrying that many “people are unlikely to be able to maintain the lifestyle that they’ve become used to when they retire”.
He said the pensions dashboard will help in making it easier for people to find out how much they have got in each individual pension pot and work out their total pension wealth.
“That might act as a catalyst for the development of a whole new generation of online tools and apps” that will help people get a better idea of how they can plug the gap in their pension savings, Cameron said.
Jon Parker, director of defined contribution and financial wellbeing consulting at Redington, said he was “pleasantly surprised” that only a quarter of people did not know how much they hold in pensions.
Combine pensions updates and payslips
Whether people know the size of their pot or not, the industry knows that they are not saving enough.
While auto-enrolment minimum contributions increased this year and are set to rise again in 2019, many people will still be far from the widely accepted ideal 12-15 per cent total contribution level.
When engaging individuals to encourage them to save even more, Parker noted that people shy away from “lengthy three-page pension benefit statements”.
He recommended a strategy of nudging people fairly frequently with short messages included in communications that people actually read, such as monthly payslips.
“If you can combine messages… then we find that works quite well,” he said.
From information to action
However, “getting that message across is one thing – getting them to actually do something is quite a different story”, Parker noted, adding that making it as easy as possible for people to pay more money into their pension is crucial.
Steve Charlton, managing director, defined contribution EMEA and Asia, at SEI, noted that the 55 to 64-year-old age group “are probably the ones that have been most poorly served by changes in the pension provision environment”.
They would have been the demographic worst hit by the move from defined benefit to defined contribution, he said.
Charlton added that many first generation DC schemes would have been “pretty poor by comparison to what we’re trying to achieve today” in terms of value for money, for example.
