Survey: Striving to bridge the retirement savings gap

Survey: Striving to bridge the retirement savings gap

Twelve months ago, another nail was being hammered into the coffin of old-fashioned personal pensions. Policymakers were confident they could replicate the success of workplace pensions – which along with self-invested personal pensions have taken over as the retirement savings option of choice for the majority of the nation – for the self-employed market.

A year later and auto-enrolment has continued to roll along and now incorporates 10m members. But the Sipp market has been hit with reputational issues, and the self-employed remain locked out of workplace pensions, with few obvious solutions on the horizon.

Research published last year by the Association of Independent Professionals and the Self-Employed, entitled ‘How to solve the self-employed pensions crisis’, found that although two-thirds of self-employed people are concerned about meeting financial needs in later life, little more than a third would stick with AE were they to be part of that initiative.

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Scott Gallacher, chartered financial planner at Rowley Turton, describes the idea of rolling out AE to the self-employed  as an “oxymoron.” He says: “I’m not sure how you can introduce AE for the self-employed, because the whole point is the employee does nothing and magically your employer sets up a pension scheme and pays into it.

“The self-employed person [would have] to set up a pension scheme and there’s no employer to pay into it. It’s compulsory pension contributions, which is fine, but I think they have to be a bit more honest about what it is.”

As a result, there is still a growing part of the population that must turn to private pensions to help save for their retirement; whether that means traditional personal pensions is another matter. Either way, the need for people to save for retirement, whether self-employed or otherwise, has never been greater. 

The state pension age has been equalised at age 66 for both men and women, and will rise to 68 over the coming years. And while recent research has suggested UK life expectancy improvements are grinding to a halt, the average person will live far beyond the state retirement age. This means that unless a substantial retirement pot is accumulated, people will have to choose between continuing to work or retiring with less.

According to Susan Hill, chartered financial planner at Susan Hill Financial Planning, one problem with current saving attitudes is that immediate gratification seems to take precedence over long-term financial security.

She says: “How many people do you know who pay more than £100 on a monthly phone contract so they have the latest model, but don’t put anywhere near that amount into their pension? It was once called the ‘takeaway pension’. How much do you pay on average on takeaways in a week – if you put your takeaways into a pension, how much income would that give you at retirement?”

Other initiatives have also attempted to bridge the retirement savings gap. But as discussed in this survey last year, the Lifetime Isa has had little to no impact on the personal pensions market. In fact, the Lisa’s own future has been hanging in the balance, with a number of MPs calling for the product to be canned in response to its muted take-up.