New research released today [10 August] as part of the Pensions Review, a multi-year partnership between the Institute for Fiscal Studies and the abrdn Financial Fairness Trust, finds widespread pessimism about living standards in retirement amongst working people. Polling of over 3,000 working age people in the UK found:
- 41% expect a “bad” income in retirement
- 15% do not expect to retire until their seventies
- 13% do not ever expect to retire at all
- 47% expect to be less comfortable than their parents in retirement
73% think the current state pension does not provide enough to attain a reasonable standard of living in retirement. On the other hand nearly 60% admit to not knowing what the state pension actually pays. And of those who think they know, many wildly underestimate the sum. Overall just one in five were able to give a good estimate (within £20 a week) of the value of the state pension.
Pessimism is so widespread that some may actually be in for a pleasant surprise in retirement. When asked about the future of the state pension, only 11% of people think it will ‘definitely exist’ in 30 years’ time, 33% of people think it will not exist, with many others unsure (25%). This reflects a general feeling of confusion and uncertainty about pensions.
People want to be able to save more into their pensions, but due to other more immediate demands many do not save as much as they would like to. Only 28% said saving into a pension was one of their top three financial savings or planning priorities.
The state pension provides a “bedrock” for income in retirement, on top of which people can build private pension entitlement. The research indicates there is work to be done on building confidence in the state pension system; it is vital for people planning their pensions and retirement finances.
Most people believe that responsibility for ensuring people have incomes for a reasonable standard of living in retirement is the responsibility of state, individuals and employers combined. 70% say that they would be likely (with 40% very likely) to contribute more if their employer matched their contributions.
Karen Barker, Head of Policy and Research at abrdn Financial Fairness Trust, said:
“Many are fearful about their future retirement, with 5 million expecting to retire in their 70s and 4½ million not expecting to retire at all. This may be because few are confident the state pension is sufficient to provide a decent standard of living or that it will even be with us in future decades. The public acknowledge the vital role of the state in providing a secure future, their own responsibility towards providing for their retirement, and the contribution made by their employer. A key question for the Pensions Review is where future funds may come from to ensure that today’s working age individuals have good retirement outcomes."
Jonathan Cribb, Associate Director at IFS and one of the Directors of the Pensions Review, said:
“A challenge for people trying to formulate a good retirement saving plan is the difficulty understanding how the pensions system works. Despite the UK’s state pension now being much simpler than in the past there is incredibly low understanding of the level of the state pension or how it is likely to increase over time, although there is better understanding of the state pension age. Policies that aim to secure financial in retirement need to recognise the relatively low levels of understanding and engagement while giving people some flexibility to make appropriate choices for them.”
