- More than two thirds of UK 50–64-year-olds don’t know how much they’ll need for retirement
- Only a fifth of 50–64-year-olds have spoken to a financial adviser about their pension
- Only 14% of people accessing a defined contribution pension pot for the first time seek free guidance from Pension Wise
A clear majority of people approaching retirement don’t get advice or guidance on how to build up and use a pension, leaving many confused, anxious and at risk of missing out on a better quality of living in later life, a new study reveals.
The Social Market Foundation think-tank said that gaps in knowledge and understanding of pensions and savings leave many people at risk of making inadequate preparation for retirement or spending pension pots unwisely.
The gap in the provision of good financial advice and guidance risks creating “real financial harm,” the report said, with opinion poll data finding that only 31 per cent of 50-64-year-olds with a pension have a broadly accurate idea of the savings they will need to deliver their desired income.
The SMF report was sponsored by Phoenix Group, a retirement and savings business. The SMF retained full editorial independence.
The report also states on average, 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.
The typical person aged 50-64 has pension savings that are 58% short of what they require, adding up to a total annual savings gap of £132bn across the country for those reaching retirement age.
The SMF research also showed that majority of people don’t access either regulated advice from an Independent Financial Adviser about their pension (only 20% of 50 – 64-year-olds with a pension do) or free guidance available from the government’s Pension Wise service (only 14% of those accessing a defined contribution pension pot for the first time do).
As a result, many lack understanding of how much they need to save or how best to use their pension in retirement, the SMF said. While some people feel very confident about their pension knowledge, many feel anxious and ill-informed.
The move away from defined benefit (final salary) pensions towards defined contribution schemes has and will continue to increase the need for better advice and guidance, the SMF said, since it will only increase the complexity of the pension landscape for many people.
The SMF, a cross party think-tank, called for an overhaul of the rules around providing financial advice and guidance in a new report published at a Westminster debate today.
The report, A Guiding Hand, is based on extensive opinion polling and focus groups with people approaching retirement age. The report was sponsored by the UK’s largest long-term savings and retirement business, Phoenix Group. The SMF retained full editorial independence.
Other key findings on what people know – and don’t know – about pensions:
- Most households do not have adequate knowledge and support in navigating the complex pensions landscape. Only 20% of 50–64-year-olds have spoken to a financial adviser about their pension. Just 14% of those accessing a defined contribution pension pot for the first time use the Government’s Pension Wise service, which aims to provide guidance on pension options, despite this service being free.
- People who do not get advice or guidance don’t know how much they need to save. Only 31% of 50–64-year-olds with a pension have a broadly accurate idea of the savings they need to deliver their desired income. Two fifths (40%) of survey respondents reported not being confident in being able to meet their desired income in retirement, with 14% saying they are not confident at all.
- Getting advice or guidance makes people much more likely to understand the pension savings they need. Half (48%) of people who get advice have a broadly accurate idea of the savings they will need. The same is true of 35% of those that had used Pension Wise.
- Use of financial advice is much more likely than Pension Wise to encourage saving. 23% of people who took advice increased their pension contributions. Only 8% of people using Pension Wise did so.
- While Pension Wise is associated with improved knowledge, using it appears to make little difference to behaviour. Just over half (54%) of individuals that had used Pension Wise reported taking no action as a result of using the service. In contrast, the most frequently given consequence of speaking to a financial adviser about retirement was increasing levels of contribution into a pension pot (23%) and changing investment (20%).