Many over 55s baffled by state pension changes
Many over-55s are either confused or completely unaware of the changes to the state pension system and how it will affect their entitlement, Aviva’s Clive Bolton has said.
Highlighting the importance of communicating with consumers about the new system, Clive Bolton, managing director for retirement solutions at Aviva UK Life, said it was vital for the government to heed public sentiment as it implemented the changes.
“The state pension should be the foundation on which all retirement savings are built. It is vital that people take steps to understand their entitlement and what actions they can take to supplement it”, he said.
According to the provider’s latest retirement report, confusion reigns over the changes coming in on 6 April 2016, despite the high value that 80 per cent of those surveyed attached to planning their retirement.
The 28-page report, State Pension: Cherished but Confused, revealed that 98 per cent of over-55s acknowledged its importance, with 32 per cent saying they could not cover basic living costs without it and a further 27 per cent finding it difficult.
Women were more likely than men to rely on the state pension: 60 per cent felt it was very important, compared to 46 per cent of men, while 68 per cent of women would struggle to cover day-to-day costs, compared to 51 per cent of men.
While 65 per cent were aware of the new flat rate, 24 per cent were completely unaware, rising to 27 per cent among 55-64-year-olds, which equates to around two million people.
There was also confusion over who will be affected by the changes, with 16 per cent of over-75s believing they would receive the full rate, which has a qualifying age of 65 or less for men and 63 or less for women.
A further 26 per cent of over-75s werer unsure if they will receive it, and 42 per cent of 55-64-year-olds were unsure if they would receive the full payment.
Richard Parkin, head of retirement at Fidelity International, said: “The single-tier state pension is generous, but could disappoint people who, at some point in their working life, were contracted out of the state second pension. They will find this has an adverse impact on their entitlement.
“DWP figures show that of those reaching state pension age in the next 20 years, 80 per cent will have been contracted out at some point, so there may be some rude awakenings ahead.”
How aware are over-55s of policies affecting the state pension?
| Unaware | Unsure | Aware |
New state pension launching in April 2016 | 24% | 11% | 65% |
Gender equalisation of the state pension age | 27% | 14% | 59% |
Qualifying age increasing over time | 28% | 15% | 57% |
State pension triple-lock | 38% | 16% | 46% |
How much savings into a pension pot is required to match the state pension?
% of over-55s who think £25,000 or less is needed | 15 |
% of over-55s who think £100,000 or less is needed | 30 |
% of over-55s who think £200,000 or less is needed | 55 |
Typical (median) estimate | £158,520 |
Actual needed to provide £7,865 annual income via an retail price index-linked annuity | £218,000 |
Difference (actual) | -£59,480 |
Difference | -27% |
Adviser view
Daren O’Brien, director of London-based Aurora Financial Solutions, said: “Aviva’s research does stand up with what we are seeing – namely, that people do not appreciate the importance, or are unaware of the changes.
“However, it is such a complicated system that people are unlikely to know how much they will get until they retire. This is also because it’s continually being tinkered with, along with AE, instead of having a cross-party agreement for the next 20 years.”
