Thursday 6 April marks two years since the introduction of some of the most radical reforms to UK pensions in a generation, the pension freedoms. New research from Aegon finds that 14 per cent of working age people are saving more into their pension as a direct result: equating to some 5.5 million people in the UK contributing more to a private or workplace pension because of the reforms.
This increased level of saving is reflected in the growth of UK retirement pots. On average, people have £50,000 saved in pensions, up from £29,000 in April 2015. In addition to these positive steps, the pension freedoms have also directly prompted more people to consider their future plans.
Less than a fifth (15 per cent) of people have realised they need to plan more for retirement, up from ten per cent in April 2016 and the proportion of people engaging with an adviser on their plans for retirement has almost doubled in the last 12 months.
Review your retirement plan
This growing engagement, is reflected in people’s financial planning. In April 2015 half of the UK population (50 per cent) had taken no steps to review their retirement plans, but positively this has fallen by 15 per cent, to just more than a third (36 per cent). In fact, one in five (22 per cent) people have reviewed their plans in the past six months alone.
As people become more active in reviewing the status of their savings, it appears that their overall aspirations for retirement income are also becoming more realistic. The average annual income people would like in retirement is £32,000, a fall from the £38,000 in April 2016, and lower again than the £41,000 people were hoping to retire on at the time of the pension freedoms.
While these incomes are still some way above the average UK income of £28,200, and a good deal more than the average pensioner income, it’s encouraging that aspirations are moving in the right direction.
Yet, despite the positive signs, more than a third (36 per cent) of people have never engaged with their pension savings. The reasons are varied, one in five people (22 per cent) claim they simply don’t understand how to review their plans for retirement, 15 per cent of people say the lack of online services or information prevents them from checking up on their pension savings and for one in ten people (12 per cent) the main barrier is the fear of seeing how little they have saved.
Steven Cameron, pensions director at Aegon says, ‘The 2015 pension reforms put many more retirees in the driver’s seat for the first time. Two years on and all the signs point to the pension freedoms having paved the way for a smoother road to retirement. People have moved up a gear, saving more and becoming more engaged with their pensions. Crucially, the proportion of people speaking to an adviser about their retirement saving and income options is almost double what it was in April 2016.
‘Giving retirees the freedom to do as they please with their money is having an impact not only on those who are taking advantage of that freedom today, but the trickle effect is positive down the generations. It seems that bringing freedoms to pensions and saving for retirement has boosted their appeal across working life, with 5.5 million UK savers contributing more to their pots.
‘However, there’s still a long way to go. People will need to accelerate their saving to reach their retirement destination and make the UK a nation of long term savers. More than a third of the adult population have never taken any action that affects their plans for retirement and these people must be encouraged to engage and save more, or face a very uncertain future.
‘Auto-enrolment does mean many more people have a workplace pension without taking personal action but default contribution levels will only go so far. And there’s a growing issue as more and more people are self-employed and won’t have the benefit of a workplace pension at all.
‘We are now firmly in an era of personal responsibility for long term saving. The freedoms bring an increasing number of income choices, while the decline of generous DB pension schemes means that retirement income will be more closely linked to contributions made through life. The challenge is to engage people early enough to give them choice about how they finance their retirement.’