- 45-54 year olds spent around two hours more planning for their last holiday or redecorating a room than thinking about their retirement last year
- Six in ten (62%) don’t know how much they have put aside for retirement, while those that do know have around £240,000 less saved than they think they’ll need to live on
- LV= is calling on the regulators to force pension providers to give customers standardised annual pension summaries showing what their pension could provide
New research from LV= finds those approaching the minimum retirement age1 of 55 are spending worryingly little time thinking about their retirement options. As a result they have a poor understanding of their financial situation and often fall short of what they want to live off.
The 2015 pension freedoms gave consumers greater flexibility over their retirement options, but the reforms have also made retirement choices much more complex. This means people must start thinking about their retirement earlier, but half (50%) of respondents aged 45-54 didn’t think about retirement at all last year. Those who did spent on average three hours and 42 minutes planning their retirement, significantly less than the average time they spent researching their last holiday (five hours 42 minutes) or planning before redecorating a room in the house (five hours six minutes).
Given the lack of time people spend thinking about retirement, it’s perhaps unsurprising that six in ten (62%) 45-54 year olds don’t know how much they have saved for retirement and only around one in ten (12%) say they fully understand the 2015 pension reforms.
If people spent more time planning for retirement this could help them better identify whether they are saving enough. People expect to need £1,360 a month in order to live comfortably in retirement. In order to do this someone retiring at 55 would need to have around £311,000 saved or £158,000 if they retire at 65, assuming they qualify for the full state pension. However, the average pension savings of those surveyed aged 45-54 years old is £71,342, with four in ten (39%) having less than £50,000 and one in seven (13%) not having anything at all. To get the amount they want and retire at 55, the average 45 year old would need to save around £24,000 in pension contributions each year for the next decade.
To tackle this lack of awareness and encourage people to plan for retirement, LV= is calling on the Financial Conduct Authority and The Pensions Regulator to require all pension providers to include a standardised summary sheet with annual pension statements. Included in this would be key data on the pension pot, information on what someone might use it for, and illustrative examples of how much monthly income it might provide in future if taken as a guaranteed income or as a flexible income. The summary could also show how much the majority of people need, in their pension pots and other savings or investments, to be able to live comfortably in retirement. LV= believes this would make it far easier for people to know whether they have enough saved, and understand their options.
John Perks, Managing Director of Retirement Solutions at LV=, said: “Ten years away from retiring is really the last opportunity people have to make any significant changes to their savings that could allow them to live a more comfortable retirement. So it’s extremely worrying people spend longer thinking about a holiday, which might last one or two weeks, than retirement, which might last thirty or more years.
“We urge anyone approaching retirement to check their pension pots annually, and consider using a professional financial adviser to help them make a plan. From 2019, the Pensions Dashboard will be crucial in helping people better understand their financial situation by allowing people to view all their pensions in one place but this will still require consumers to log on to the system. We also want the regulators to make pension providers send examples of future monthly income to consumers annually so people are encouraged to plan more.”
The 2015 pension freedoms gave consumers greater flexibility over their retirement options, but the reforms have also made retirement choices much more complex. This means people must start thinking about their retirement earlier, but half (50%) of respondents aged 45-54 didn’t think about retirement at all last year. Those who did spent on average three hours and 42 minutes planning their retirement, significantly less than the average time they spent researching their last holiday (five hours 42 minutes) or planning before redecorating a room in the house (five hours six minutes).
Given the lack of time people spend thinking about retirement, it’s perhaps unsurprising that six in ten (62%) 45-54 year olds don’t know how much they have saved for retirement and only around one in ten (12%) say they fully understand the 2015 pension reforms.
If people spent more time planning for retirement this could help them better identify whether they are saving enough. People expect to need £1,360 a month in order to live comfortably in retirement. In order to do this someone retiring at 55 would need to have around £311,000 saved or £158,000 if they retire at 65, assuming they qualify for the full state pension. However, the average pension savings of those surveyed aged 45-54 years old is £71,342, with four in ten (39%) having less than £50,000 and one in seven (13%) not having anything at all. To get the amount they want and retire at 55, the average 45 year old would need to save around £24,000 in pension contributions each year for the next decade.
To tackle this lack of awareness and encourage people to plan for retirement, LV= is calling on the Financial Conduct Authority and The Pensions Regulator to require all pension providers to include a standardised summary sheet with annual pension statements. Included in this would be key data on the pension pot, information on what someone might use it for, and illustrative examples of how much monthly income it might provide in future if taken as a guaranteed income or as a flexible income. The summary could also show how much the majority of people need, in their pension pots and other savings or investments, to be able to live comfortably in retirement. LV= believes this would make it far easier for people to know whether they have enough saved, and understand their options.
John Perks, Managing Director of Retirement Solutions at LV=, said: “Ten years away from retiring is really the last opportunity people have to make any significant changes to their savings that could allow them to live a more comfortable retirement. So it’s extremely worrying people spend longer thinking about a holiday, which might last one or two weeks, than retirement, which might last thirty or more years.
“We urge anyone approaching retirement to check their pension pots annually, and consider using a professional financial adviser to help them make a plan. From 2019, the Pensions Dashboard will be crucial in helping people better understand their financial situation by allowing people to view all their pensions in one place but this will still require consumers to log on to the system. We also want the regulators to make pension providers send examples of future monthly income to consumers annually so people are encouraged to plan more.”
References
LV= has a handy pension calculator which allows people to check whether they’re on track for retirement and how much their pension is likely to be worth as an income. The insurer also created some tips for those approaching retirement to help them make a plan:
- Track down lost pensions - If you’ve moved jobs frequently and lost track of old pensions, you might be able to find your pension details by filling in one of LV's Pension Tracing Forms.
- Consider consolidating - If you have more than one pension pot, it can sometimes make sense to bring all the different pots together into one larger pot. You could get better investment performance and lower charges by doing this.
- Check your other assets - Compile a list of any other savings or investments that you have which could help fund your retirement. This could include equity in property.
- Review the state pension - It’s unlikely to be enough to see you through retirement on its own but it should be taken into consideration when looking at your options.
- Consider speaking to an authorised financial adviser - Regulated financial advice is the best way to help you plan and save enough money to last throughout retirement.
Notes to editors:
[1] 55 is the earliest age at which people are able to access their pension. The average age of those who say they plan to retire within the next 6-10 years is 49 years old and FCA data showed 40% of people who accessed their pension pots between July-September 2016 were aged 55-59.Methodology for consumer survey: Opinium, on behalf of LV=, conducted online interviews with 2,404 UK adults between 12th and 27th March 2017. Data has been weighted to reflect a nationally representative audience.
Methodology for retirement income: LV= calculated the size of pension pot needed to give someone in good health a monthly income of £1,361 (or annual income of £16,332) from the age of 55 until death, and 65 until death, including the full state pension. To provide a guaranteed income between 55 and 65, LV= calculated the pot size needed to purchase a Fixed Term Annuity with no money left at the end of the term. To provide an income after 65, once the state pension kicks in, three comparison annuity quotes were produced with major providers for someone retiring at 65 and an average figure was taken for each. All quotes are gender neutral and assume a single life annuity with no death benefits.