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.”