Only a quarter of those over age 50 plan to seek financial advice in the lead up to their retirement, emphasising the need for Pension Wise and the Government’s campaign to raise awareness of the pension changes, according to LV=’s State of Retirement report.
The report, which tracks the financial circumstances of those in and approaching retirement, found that only 33 per cent of over-50s coming to retirement understand the upcoming pension reforms, while 12 per cent are completely unaware that any changes are due to take place.
John Perks, managing director at LV= Retirement Solutions, said, “Today’s retirees will have greater choice and flexibility as to how they take their pension income, yet our report shows that few people approaching retirement understand the choices now available to them. It is important that retirees are aware of all the income options to ensure they select the solution that best suits their needs.”
“We support the Government’s new guidance service, Pension Wise, and hope it will encourage consumers to seek regulated advice and shop around so they can make the most of their pension savings.”
Of the survey participants planning to retire in the next five years, 37 per cent have one personal pension fund and 41 per cent have more than one. But a quarter of those with a pension pot have no idea how much it is worth.
Many coming up to retirement underestimate how much they have saved over the course of their working life, creating a disparity between the amount of income people believe they will need and what they will actually receive. The average respondent estimated that they would need a minimum of £276 per week to survive in retirement, but in reality can only expect £189 per week – a shortfall of £4,524 each year.
Michelle Cracknell, chief executive of The Pensions Advisory Service, said, “We are such a difficult industry to navigate around and there is a misunderstanding of the options available. Our ambition is that the guidance on pensions becomes a life event.”
Outstanding debt is not a problem just for young people, as the report finds that 4.3m retirees admit to having some form of debt. People are also spending longer in retirement, as the average life expectancy for those that reach state retirement is 84.5, meaning that retiree’s income needs to go further for longer.
In order to save enough money to fund their lifestyle in retirement, 22 per cent of over-50s now expect to retire later than they had originally hoped, and a further 10 per cent have found they need to work more hours coming up to retirement as opposed to their expected fewer hours.
The report also discussed the gender gap in retirement savings, stating that men who responded to the survey (those with a workplace and/or private pension) could expect to reach retirement with a pot worth on average £201,000, while the equivalent women’s pot was worth on average £107,000 at retirement. Women are less likely to have a private pension – 23 per cent of women within five years of retirement plan to live solely off the state pension, compared with 9 per cent of men.
The report recommends that individuals seek advice to decide how to structure their income in retirement. Awareness of the changes is low, so a combination of education, guidance and advice will ensure that consumers secure a better retirement income. The new guidance service, Pension Wise, will also help consumers understand the choices available to them to help make an informed decision.
