The long-term trend over the last 40 years has been for only half the private sector employees to have actively participated in a workplace pension at any given point in time.
The self-employed, who make up around 15 per cent of the UK’s workforce, are a particular concern, with the lowest savings rates of the target age group. The schemes available to them are DC personal pensions and do not benefit from employer contributions.
There are 1.8 million active members of such schemes, which includes around 600,000 self-employed people aged between 50 and the SPA.
Building firm foundations
So what can the industry do to help? While an active choice for many, relying solely on equity in the home is unlikely to be practical for large swathes of consumers across generations, particularly if long-term care becomes a factor in later years.
Action is required to support consumers in planning and funding an adequate income in retirement.
Enhanced consumer awareness is critical.
Wake-up packs distributed at age 45 would surely allow more time for people to take stock.
One of the biggest issues is that many consumers appear to have a lack of understanding regarding their likely retirement income shortfall. The government and industry could, in a combined effort, work on an approach which collectively helps people that are underwhelmed and under-funded.
Financial jargon is also a big hurdle for potential investors, with many disengaged from the off, purely because they don’t understand the term ‘pension’, let alone terms such as ‘drawdown’ or ‘annuity’.
Unrealistic expectations in retirement must also be addressed and realities faced if future generations are to benefit from an adequate income source in retirement.
A holistic approach to financial advice also seems sensible where advisers are able to provide guidance that includes the methods, benefits and consequences of using home wealth to fund retirement as part of financial planning, so that consumers can consider all their sources of savings and wealth for supporting them in retirement.
It’s also worth noting that the new single financial guidance body suggests access be granted at age 50 (down from 55 under The Pensions Advisory Service), though we would suggest this is still too late.
Wake-up packs distributed at age 45 would surely allow more time for people to take stock.
It is now time for the industry to find meaningful ways to engage consumers in the area of retirement planning and beyond the reliance on property, to open up the debate around risk over reward and to help customers see the real value of their products in a jargon-free manner.
Dawn Hyams is head of investor insight at The Wisdom Council