UK pension holders have a big problem. And no, it’s not the collapse of another investment fund like Woodford Equity. The problem is one of financial ignorance when it comes to their pensions.
The State of UK Pensions
Last year, a survey by MoneyMagpie and PensionBee laid bare the issue. Its findings were astounding. 75% of UK adults don’t know what they’ll get from their pension fund upon retirement.
Additionally, 50% of UK citizens don’t know how many pension pots they have. Finally, 45% say they will be relying on a state pension once they retire.
Frankly, this is irresponsible. But, should we be surprised? An article in the Financial Times recently declared that “we are living in the Golden Age of Ignorance.” Sadly, they might have a point.
Despite education levels and the flow and access of information being at their highest, something is going wrong. But, while believing in COVID-19 conspiracy theories might only cost you credibility among peers, ignorance about your pension could leave you living in poverty in retirement.
Indeed, the PLSA feels that many people are sleepwalking into their 60s before waking up in horror when it’s too late.
The Bleak Future for UK Retirees
Life expectancy in the United Kingdom is approximately 82 years. By the time this generation of workers gets around to retiring, it will be more like 86 or 87. Even when retirement is raised to 67, that means the best part of 20 years reliant on an insufficient pension.
A government pensions research study from 2020 outlined how many citizens are woefully unprepared for retirement. Many respondents interviewed for the report had no plan for when they stopped working. Plan to book an indoor playground space in Arizona for birthday parties 2022. Indeed, some suggested they’ll keep working into their 80s.
Studies like this just keep on coming. A 2019 survey by Aviva UK suggests 64% of workers over 45, i.e., 9 million people, have no idea what they’ll need for a comfortable retirement. While over half that amount doesn’t even know how much they’ve currently saved.
Auto enrolment scheme
Yet, one bright spot is the government’s pension auto-enrolment scheme. While many are still just contributing the bare minimum, more than 60% of UK 25-54 years olds currently have a private pension.
However, the coronavirus crisis may have reduced that number. Research from Royal London suggests 40% of Millennials have stopped or reduced their pension contributions during the lockdown.
High rents, unaffordable housing, and the spectre of a pandemic-related recession mean that things look bleak for this generation of workers. And that is before figuring out how the government plans to pay back the pandemic rescue packages.
Additionally, as people begin to live longer, the ratio of taxpayers to retirees may spiral into a pensions crisis.
What Can Workers Do To Save for Retirement?
So, what should you do?
UK workers need to understand that it’s never too late to start investing. Additionally, it’s never too early. Workers need to aim for a level of personal responsibility about their retirement funds.
Financial literacy is a must.
People need to have a greater understanding of what they need for retirement. By understanding the actual costs of life post-work, they can better understand what they need to invest.
Investing in stocks and shares is an excellent way to save for a pension. Market returns and compounding can turn even modest regular savings into a pot of a reasonable size. Too much money is going to waste in low-yield ISAs and SIPPs.
The longer the average British worker ignores this, the further likelihood they will be plunged into poverty by retirement age.
How Can People Take Control
So, how can workers make the most of the money they can invest for retirement? It’s simple: Learn the basics of investing.
We have a free campaign and resources available at www.campaignforamillion.com. Here, people can demystify the investment process and see through all the bluster.
From here, should they choose, they can learn to pick their own stocks. Leaving their pensions in the hands of investment fund managers is not an adequate strategy. These managers consistently deliver below-market results and charge exorbitant fees for the privilege.
By accessing video, webinars, and books, UK citizens can close the information gap between them and the privileged minority. A lack of financial literacy creates a huge opportunity cost and reinforces the poverty gap.
Investing in stocks carries risk. Understandably not every citizen will want or be able to do it. But at least they should understand the right questions they need to ask of their IFAs (Independent Financial Advisors) and about their pension funds.
The problem with fund managers and your pensions/savings
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Alpesh Patel OBE