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December 2010

Britons risking poverty through lack of pensions knowledge, says major study of 55-to-65-year-olds

  • Consumers struggling to work out what their retirement income will be
  • Many underestimating how much they need to save
  • Huge demand for simpler and clearer pensions products and advice
  • Widespread support for pensions reform

 

Many savers still have no idea how to fund their retirement in the face of changes to the UK’s pensions system, a study has revealed.

Most Britons relish the prospect of retiring and on average would like to stop working at 63 if they could afford to do so, according to new research.

But an alarming majority lack even a fundamental grasp of how to finance their plans and are caught in a crisis of knowledge.

The findings emerged in Mind the Gap – the Pensions Funding and Knowledge Crisis, a research report by the Oddfellows Friendly Society in partnership with pensions think-tank and lobbying body, the Centre for Retirement Reform.

The study was based on a detailed survey of 1,200 Oddfellows members aged from 55 to 65.

Oddfellows CEO Philip Howcroft said: “The findings of this research should be of concern to the whole country.

“It’s clear there’s a huge gap in the knowledge that people should have if they are to save effectively for retirement.

“There’s an urgent need for better education and training around retirement saving and an urgent need for greater simplicity and clarity around pensions and savings products.

“Unless people understand what income they can expect when they retire – from their savings and from the State – how can we expect them to save enough?”

The survey found most people expect to stop working at 65 on average but would prefer to do so at 63 – and would like to “glide” into retirement in stages.

On average they think £25,000 a year gross income is sufficient to enjoy a reasonable standard of living.

But when asked how much they need to save to achieve that nearly half did not reply or said they “didn’t know”.

Of those that did reply, most significantly underestimated the figure. The average response was £380,000. In reality, based on an annuity rate of 5%, the answer is nearer half a million pounds.

In addition, almost half of those still to retire can’t name a positive aspect of pensions and freely admit they don’t know enough about pension products.

Despite this lack of expertise, only a third seek professional advice, with many preferring to rely on newspapers, magazines and the internet to inform them.

Almost three quarters believe the State Pension and State benefits will play a significant part in their retirement ­– yet one in five has no idea what they are entitled to.

One in three has no idea how their savings will affect their entitlements, and less than one in five claims to know exactly how much they need to save to enjoy the lifestyle they want.

Howcroft added: “These are hardworking, responsible people who have a responsible attitude towards their financial well-being.

“If these people – who are right at the retirement age – are struggling to understand retirement planning then we have a serious problem that needs addressing now.”

Among those still to retire, half back a proposal to raise the age at which people could receive their State Pension to 70 – provided people are given time to adapt their plans.

Some 84% of those still to retire and 74% of those already retired support retirement reform.

John Jory, Director General of the CRR, added: “This is a real wake-up call at a time when the pensions domain in this country is seeing a dramatic shift in responsibility towards the consumer.

“It serves as a very stark warning that empowerment could be useless – and perhaps even dangerous – if it isn’t accompanied by education.

“We need a fair, affordable and flexible system that lifts pensioners out of poverty while encouraging and rewarding saving.

“The current system isn’t working, and I hope this report will help spur meaningful change.”

 

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