Savers 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 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, according to a report Mind the Gap – the Pensions Funding and Knowledge Crisis, carried out by the Oddfellows Friendly Society in partnership with pensions think-tank the Centre for Retirement Reform.
The study, based on a detailed survey of 1,200 Oddfellows members aged from 55 to 65, found the sample thought £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, well short of the real figure, that is nearer £500,000. 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.
Almost half of those still to retire could not name a positive aspect of pensions and freely admitted they do not 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.
Oddfellows chief executive Philip Howcroft says “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?”John Jory, director general of the Centre for Retirement Reform says: “This 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.”