Our pitiful pensions pots

Philip Salter
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THE words “pensions” and “crisis” are used together with increasing reality – yet, through a lack of either money or foresight, the people of this country have yet to respond.

Ignorance is bliss – but only up to a point. And that point will come like a bolt out of the blue for some people when they realise they don’t have any savings with which to retire. It is rational to assume that most people working today will get only a fraction of the state pension (factoring inflation) given out today – and today’s allotment leaves its participants scrimping and saving in their twilight years. This isn’t a split between rich and poor, according to a recent survey conducted by YouGov for A.T. Kearney:

25% of people on a salary of up to £39,999 a year are unsure whether they currently have any pension arrangements in place. But:

29% of people earning over £100,000 a year do not know whether they are still contributing to their pension – or even if they have one.

And higher rate taxpayers are missing out – to the tune of £795m according to unbiased.co.uk – by not making addition voluntary contributions (AVCs) to employers’ occupational pension schemes. 482,000 higher rate taxpayers, qualifying for AVCs, could reclaim £1,650 each in tax relief. Unbiased.co.uk’s chief executive Karen Barrett says: “Tax relief on pension contributions is free money.” Adding: “This is even more important if you are a higher rate taxpayer – adding an extra 40 per cent or 50 per cent to your retirement savings.”

Neil Dennington, a principal at A.T. Kearney, says “people, of all ages, are really only thinking about the ‘here and now’ in terms of their finances and seem unable or unwilling to plan financially for the future.” He adds: “The government and the FSA’s focus appears to be much more on policing cases of mis-selling, than addressing the much bigger issue that the great majority of the population are undereducated about their finances.”

A.T. Kearney’s work reveals that the pension participation rate across the working age population is lower than official government numbers suggest. Recent Department for Work and Pensions (DWP) analysis showed that 38 per cent of working-age people are saving into a private pension, but Dennington believes the figure to be 36 per cent.

16% is the expected drop in annual retirement incomes, uncovered by Prudential’s Class of 2012 research. People “expect to live on an average annual income of £15,500.” It also showed that only two in five surveyed say they have saved enough to secure a comfortable retirement. Many of the other three in five just don’t know they don’t have enough – yet.

Jason Witcombe, a chartered financial planner at Evolve says that “with increased longevity and falling annuity rates, it is easy to grossly underestimate how much money you need to build up to secure a comfortable retirement. Final salary pension schemes used to provide the bedrock of people’s retirement incomes but now most of these are closed, in the private sector at least, the

responsibility to plan for the future all lies with the individual and is something that, as a nation, we haven’t woken up to yet.”