Your pension is one of the most significant aspects that will affect your quality of life in retirement. Yet, according to research conducted by The Social Market Foundation (SMF), a large proportion of people fail to get advice on how to build up and use a pension.
In fact, the study revealed that only twenty per cent of fifty- to sixty-four-year-olds have spoken to a financial adviser for guidance. This is despite the fact, that more than two-thirds of that age group admit they do not know how much money they will need for retirement.
The savings shortfall
The gap in pensions guidance is believed to equate to a staggering £132bn shortfall in savings. It is based on the fact, that the typical person aged fifty to sixty-four has pension savings that are fifty-eight per cent short, of what they need.
Sadly, there is often a large discrepancy between what people think they will need and the actual amount as indicated by an independent online calculator. The study shows that only thirty-one per cent of fifty- to sixty-four-year-olds with a pension, have an accurate idea of the savings they will need to deliver their desired income. Significantly, most people approaching retirement age, are almost £250,000 short of the pension pot they would need, to deliver the pension income they want in later life.
Lack of awareness
As a result of not seeking advice, most people feel ill-informed and confused about their future. Unfortunately, many will be inadequately prepared and in danger of missing out on a better quality of life in retirement.
Part of the problem is that there is a lack of awareness of what is on offer. There is the Government’s free Pension Wise scheme but barely half of those aged fifty-five to sixty-four had heard of it. This is borne out by the fact, that only fourteen per cent of those accessing a defined contribution pension pot for the first time, seek free guidance from Pension Wise.
Furthermore, there is the view that use of Pension Wise, does not encourage saving as much as financial advice does. Just over half of the respondents who had accessed Pension Wise reported taking no action after using the service. In contrast, twenty-three per cent of those who had spoken to a financial adviser, increased their pension contributions.
Sometimes, however, there can be the tendency for people to feel overconfident regarding their finances. Some say they have not spoken to a financial adviser because they feel they are financially knowledgeable enough to make their own decisions. Interestingly, thirty-four per cent of respondents saying this were men and twenty-two per cent women.
New pension landscape
It is worth remembering too, that the pension landscape has grown in complexity in recent years, with the move from defined benefit, or final salary pensions, to defined contribution schemes. This means that if anything, the need for advice has increased.
As Scott Corfe, SMF research director says, “The blunt truth about pensions is that many people do not know enough to make the decisions that would give them the retirement they want. Poor information will mean poor outcomes for too many people.”
He goes on to explain that the serious gap in the provision of advice and guidance around pensions, will lead to real financial harm. In his view, the fact that many people lack an accurate understanding of what they will need for their ideal retirement, means some people will not save enough and end up disappointed.
This is why it is vital that you explore the options of how you can use your pension savings to make the best use of your money. Put yourself in control of making the right financial decisions throughout your life.
Remember, you do not have to navigate the complex world of pensions on your own. If you would like to discuss your pension with one of our experienced advisers, do get in touch.