Why some clients start their pension late on in life

She had not been in employment since before her first child was born, and had not been making any pension savings of her own during that time, although she always tried to put money aside for a rainy day.

Now she is back working part-time for a local church, and has been auto-enrolled into their workplace pension scheme.

However, given her salary and the fact she works only two days a week, her own pension contribution is about £5 a month, doubled by the employer to a total pension saving of £15 a month.

When asked whether she thinks this will be enough to retire on, she replied: "No. I guess it will be beans on toast for the future every day."

Her husband will have a generous civil service pension, and unless the government makes any drastic changes, she expects the state pension to kick in once she reaches 67, but she is concerned about her personal financial future.

In our 50s, we must no longer see ourselves as being on the wind-down to retirement. Alistair McQueen

This has been compounded by the fact that many years ago, she used to work for Tarmac, part of Carillion, which went bust in January this year, and took people's pensions down with it, and her civil service pension, which she paid into before her children were born, seems to have been eroded to almost nothing.

Ms H says: "I got this strange letter saying that Carillion have got my pension now. Plus, I worked for the civil service for several years and then I was made redundant.

"It should have been frozen but I've been told it's worth about £90 [a year] and I know it should be more than that because I paid a lot into the civil service pension.

"But I don't know where to go, who to look for, whatever, so it's all very confusing."

Changes in circumstances

Ms H is typical of many second-jobbers: tiny bits of frozen or deferred pensions lingering from their single or pre-children days, long years without making any form of pension saving whatsoever, and then auto-enrolled into a low-contribution workplace scheme much later on in life. 

They have made some form of saving, but not much, and they do realise the importance of making the most of their savings potential.

Not all later savers, however, are second jobbers or returning later on in life to the workforce; some will have had to start work for the first time, for example after divorce or the death of the main breadwinner. 

Many of these people might be low-skilled, on entry-level salaries, and the need to save into a pension for their later life has to be balanced against meeting their daily living expenses as a newly single person.

Tom Selby, senior analyst at AJ Bell, comments: "Changes in work or life circumstances, such as getting divorced, could mean saving for retirement all of a sudden becomes pressing, when previously it seemed to have been taken care of."

For these people, many of whom may have never saved into any form of pension before entering the workplace, education is crucial.

Inertia

Sometimes, however, it is not just enough to help educate people about their savings journey. For some, as Mr Selby explains, it is a matter of getting them to see their need to save in the first place.

He says: "There are a vast number of reasons someone might not start saving for retirement until they are older but the most obvious one is inertia.

"Many people have simply never considered saving for a pension, or just stuck their heads in the sand."

Others, he adds, may have been entirely focused on other things, such as saving for a house, and just not looked further into their financial future until the reality of retirement started to hit home.

Part-time and self-employment

Although the current age for being able to access a workplace pension is 55, many people simply do not want to retire at 55; they may prefer to continue working, either full-time or part-time.

According to Alistair McQueen, head of savings and retirement, the fact many people re-enter the workplace or become self-employed later on in life should be recognised as a social trend that will keep on growing.

He explains: "We need to reframe our definition of 'later life'. With some justification, 50 should be seen as the new 40. We can expect to live well into our 80s.

"Therefore, in our 50s, we must no longer see ourselves as being on the wind-down to retirement. In our 50s, we have much more to give, and millions of people are doing that."

Mr McQueen points to the fact there are nearly 10m people aged 50 and above in work in the UK, representing one in three of all workers, according to the 2017 Aviva Real Retirement Report.

"Working longer is one of the most powerful ways of paying for our actual 'later life', when it comes," he states.

Then there is the question of those who become later life entrepreneurs, setting up their own businesses in their late 40s or 50s.

Changes in work or life circumstances, such as getting divorced, could mean saving for retirement all of a sudden becomes pressing, when previously it seemed to have been taken care of. Tom Selby

According to the Office for National Statistics, there are 4.6m people in the UK working in the gig economy or registered as self-employed, and this number is set to rise.

While those opting to become self-employed will miss out on a workplace pension, they will need help in setting aside some funds each month into a personal pension for when they eventually hang their boots up. 

Mr McQueen says such people need better guidance when it comes to career and financial choices they make in their late 40s and 50s.

For example, in 2017, Aviva piloted mid-life career reviews, tailored for people in their 50s, to help them understand their working and financial choices. 

The grey glide

Mr McQueen's earlier comments on the shifting mindset on age and retirement are worth bearing in mind. While most people in the pensions industry think of someone starting to save in their 20s and being able to access their workplace pension at 55, the reality is for many people, they might start saving in their 40s with the intention of retiring at 70.

This still gives them 30 years' worth of potential contributions and compounding on those returns before they start contemplating drawing down that pension pot. 

Indeed, research published in June 2018 from consumer engagement specialist The Wisdom Council, sponsored by BlackRock, HSBC, Standard Aberdeen, St James's Place, Investec, Columbia Threadneedle and the Personal Investment Management and Financial Advice Association, talked about the 'grey glide'.

Figure 1: The 'grey glide' to retirement

Source: The Wisdom Council report 2018

The research, carried out among 2,000 individuals, found 38 per cent of people think full retirement will happen only when they hit 70. Have pension providers, advisers and indeed government caught up with that?

Anna Lane, chief executive of The Wisdom Council, comments: "The 'grey glide' is the new reality. Have manufacturers caught up with the need to refresh and innovate to allow that flexibility?"

Education

Whether people are starting over, starting for the first time, or intending to work late into their 'golden years', getting as much information as possible about their need to save for a comfortable retirement is crucial - and it cannot just be left to the employer to provide such information.

As quoted in FTAdviser last year, Brian Smith, head of benefit solutions at Ascot Lloyd, advocates employers being "prepared and willing to assist to make advice practical for their employees".

The amount people are saving is, in many cases, still too little to ensure a secure retirement. Chris Cummings

Part of this involves raising awareness of the £500 pension advice allowance - which some providers are pushing the government to double to £1,000 - but also providing access to specialist information and advice.

Mr Smith explains: "An efficient method more likely to deliver the basic information that most savers need is group pension meetings, where a practical introduction to the company pension scheme provides a valuable introduction.

"As a group benefit, there is no ‘benefit in kind’ charge to apportion, and individuals with more specific advice requirements can seek further help as and when it is needed."

He believes that employer-driven pensions education is important at "all stages of the retirement savings journey".

Communication about how investment decisions can make a difference to people's pension pots is also vital, says Chris Cummings, chief executive of the Investment Association. 

According to Mr Cummings, it is not enough just to tell people about auto-enrolment; they also need to understand the basics of how investment decisions can make a difference to the overall outcome. 

He states: "Auto-enrolment is a game changer, more people than ever are now saving for retirement, but more needs to be done to help today’s savers to have better pensions.

"Investment is the beating heart of the pensions system and is one of the most important factors in determining the value of savers’ pension pots. That is why investment needs to be made a greater priority for defined contribution pension schemes.

"The amount people are saving is, in many cases, still too little to ensure a secure retirement. Industry, regulators and government need to build confidence in pensions saving and find new ways to increase engagement."

He has called for better communication "before, at and during retirement", adding this is "critical". 

Ms Lane would agree: "Customers want clarity, simple products that flex with them and communication that speaks to them as human beings."

simoney.kyriakou@ft.com