Keep calm and procrastinate about pensions

It’s been coming at us for decades. However, combine this with general economic anxiety, political uncertainty and potential removal of the triple lock promise and we can be forgiven for hearing the P-word and switching off.

What is not forgivable is just how uninformed and unprepared huge swathes of the population are when it comes to securing their financial future.

The sad truth is that millions are set to miss out on a full state pension and millions of us also have a dangerously inadequate backup plan. Or no plan at all.

To get a picture of what’s really happening, Harris Interactive surveyed a range of future UK pensioners who will almost certainly need to supplement any state pension with income from workplace and personal plans.

If we don’t have much spare cash now, how can we possibly hope to find and save the very large amounts that it seems we are going to need.

Their results suggest that we are shockingly underprepared for retirement and we know it. Significantly, 60 per cent of us feel either “not very well” or “not at all well” prepared for retirement from a personal finance perspective.

This peaks among under 30s with over three quarters (77 per cent) feeling this way. Just 7 per cent feel “very well prepared”.

But even among those who are making some preparations by paying into a pension scheme as a percentage of monthly salary, around two-fifths do not know what that percentage is.

Of those who do know, 40 per cent claim to pay up to 5 per cent of their salary, with a further 46 per cent paying over 5 per cent, but less than 10 per cent. Over half of those aged 40+ pay more than 5 per cent into their pension - but is this too little too late?

Percentages can’t tell us very much about individual cases but by taking a figure of £100/month [the median monthly payment reported] and running it through various scenarios (including salaries and ages) on a reputable online pension calculator, a projected five figure shortfall in funds per annum was returned over a range of different ages.

And that was after a full state pension and additional employer matched contributions were added in. Of course, these calculations can only ever be ‘illustrative’ but they are demotivating.

Particularly for those in their 20s and 30s for whom the increasing impact of paying for social care for elderly relatives, inheritance expectations and difficulties getting on the property ladder have caused pensions procrastination. Who wants to envisage a future like that?

And things look even worse for the one third of under 30s who are not yet making any pension provision at all. Perhaps this is the nub of the problem.

Pensions and what they might be worth are really tricky to calculate. If we don’t have much spare cash now, how can we possibly hope to find and save the very large amounts that it seems we are going to need? So many of us just cross our fingers and hope.

Or even look away. Some 16 per cent of those surveyed were simply too unsure to even hazard a guess as to what they might need in retirement.

Uncertainty and inactivity around pensions is an important issue. Almost one third of those surveyed have no savings or investment products and ahead of its launch only one third of under 40s knew about the new Lifetime Isa.

We may not want to, but we all need to look long and hard at pension plans.

The official government guidance on the Gov UK pension calculator is to seek independent financial advice. The sooner the better.

Michael Worledge is financial services sector head at Harris