Over half of people aged between 24 to 29 are unsure whether they will receive any state pension at all once they retire, findings from Interactive Investor have revealed.
Across all age groups, concerns are mounting that Chancellor Rishi Sunak and future Governments will continue to meddle with state pensions, making it increasingly difficult for many to adequately plan for later life.
‘I’m not sure there will even be a state pension by the time I get to pension age. I hope there is, but I just don’t know’, one younger respondent said.
‘It’s not surprising that people’s faith is undermined and their tolerance stretched when the Chancellor plays Dick Turpin with pensions’, an expert at Interactive Investor said
Fears: Over half of people aged between 24 to 29 are unsure whether they will receive any state pension at all once they retire
Trust in the Government to fulfil its pensions promises is waning, exacerbated by the lack of clarity over what state pension sums people will receive in the years ahead, according to the Great British Retirement Survey.
One in five people yet to retire said they did not know whether they would receive any state pension. This uncertainty rose to 26 per cent among people in their thirties and 53 per cent of people aged between 24 to 29.
Moira O’Neill, head of personal finance, Interactive Investor, said: ‘Saving into pensions is an act of faith – it’s something we’re encouraged to do all our working lives.
‘So it’s not surprising that people’s faith is undermined and their tolerance stretched when the Chancellor plays Dick Turpin with pensions.’
What is happening to state pensions?
The Government has confirmed it will suspend the ‘triple lock’ for annual state pension increases for a year.
Huge Government borrowing and economic disruption triggered by the pandemic prompted the Government to make the move.
Average earnings have also jumped by 7.3 per cent this year. Under the triple lock, this rise would be translated to a 7 per cent rise in the state pension. The Government thinks such a hike would be infeasible in the current economic climate.
The triple lock refers to the notion that state pensions rise in line with the highest of these three measures every year: (1) A flat 2.5 per cent rise; (2) Average earnings growth, measured from May to July each year; or (3) Inflation, as measured in the year from September every year.
The Government’s suspension of the triple lock over the next year will have a significant impact on the amount of state pension cash retirees will receive.
Nearly half of over 10,000 respondents admitted they are worried about running out of money in retirement, potential slumps in the value of shares and the rising cost of living.
And, in the sphere of workplace or personal pensions, people are growing increasingly concerned about the prospect of further tax changes on later life savings, with issues surrounding the lifetime allowance a particularly thorny problem.
‘The possibility of the Lifetime Allowance being further reduced as inflation rises is mad’, one respondent told Interactive Investor.
In March last year, the Chancellor confirmed that the lifetime allowance, which refers to the cash you can have in a pension without incurring a tax charge, would remain at £1,073,100 rather than increase in line with inflation.
‘Many engaged long term investors see the lifetime allowance as highway robbery and with the Treasury repeatedly signalling more tax attacks on pensions, they get even angrier’, Ms O’Neill of Interactive Investor said.
While uncertainty looms, many people are still surprisingly optimistic – perhaps, in some cases, too optimistic – about how much money they will have across all their pension pots when they retire.
Twenty-one per cent of non-retirees said they expect to have at least £1million in their pension pots once they retire, while 13 per cent said they are expecting to end up with between £700,000 and £999,999.
Yet, at the other end of the spectrum, 6 per cent think all their pension pots will amount to between zero and just shy of £20,000.
Nearly half of people said they viewed retirement as a time to enjoy financial freedom and independence, with growing numbers putting travel as their top priority once they stop working.
What size will yours be? 21% of people believe their pension pots will total at least £1m
In terms of how many pension pots people have, the list seems to be getting longer as people move jobs and careers more often.
Sixty-six per cent of respondents yet to retire said they had more than one pension pot, while 15 per cent claimed to have more than four.
One in 17, or 6 per cent, of those yet to retire admitted they had no idea how many pension pots they had.
In her first speech as chair of the Pensions and Lifetime Savings Association this week, Emma Douglas warned that Britain is ‘walking into a pension crisis’ due to the people not being able to or choosing not to save enough sufficient sums of cash for later life.
Ms Douglas said: ‘The savings gap is a big societal problem, the current amount of money going into long-term savings, even with auto-enrolment at 8 per cent, is inadequate for most and we are walking into a pension crisis.’
Got a collection? 15% of people said they currently have four or more pension pots
How much do you need to retire on?
Couples will now need to find an extra £2,200 a year to keep up a comfortable retirement lifestyle after the pandemic, after the pension industry’s guidelines for spending expectations were revised in the wake of the pandemic.
It means couples will need another £54,400 and total pension savings of nearly a quarter of a million pounds to enjoy a retirement of £8 bottles of wine, two annual holidays to Europe, and a restaurant budget of £500 a month, according to the PLSA’s latest ‘retirement living standards’ guide.
The research also revealed how spending priorities had changed, with retirees now wanting to splash more cash on dining out and haircuts, and insisting on a subscription to Netflix.
It comes as Britain faces a cost of living crisis while energy bills soar ahead of winter. The Bank of England expects inflation to soar above 4 per cent by the end of the year and supermarkets have warned of 5 per cent price rises.
The PLSA said around half of single employees are on track to expect a lifestyle between minimum and moderate – and couples who are able to share costs will be higher in this range.
Tom Selby, head of retirement policy at investment broker AJ Bell, added: ‘If having a moderate or comfortable standard of living in retirement is a key goal, you might need to think about saving a bit more in your pension if you can afford to.’
Budget predictions on pensions
On 27 October, the Chancellor will unveil his latest autumn Budget, and any potential raids on pension pots and connected tax perks will be heavily scrutinised.
Raj Mody, global head of pensions at PwC said: ‘The Government has already announced the suspension of the triple lock guarantee on state pensions. We might see similar action again next year if current wage patterns carry on.’
Many experts within the sector have urging the Chancellor against ploughing ahead with any further reduction in the lifetime allowance or the annual allowance.
But, given the vast sums borrowed by Government in the past year and Mr Sunak’s desire and need to bolster the Treasury’s coffers, the future for pension savers remains far from certain.
According to experts at Handelsbanken Wealth Management it has long been rumoured that pensions tax relief in its current form could be scaled back at some point. A single flat rate of potentially 25 per cent could be introduced at some stage, it believes.
‘This would benefit basic rate taxpayers receiving 20 per cent relief but limit relief for higher and additional rate taxpayers who could consider increasing contributions’, Christine Ross, client director at Handelsbanken Wealth Management, said.
PwC’s Mr Mody also thinks the Chancellor could potentially address auto-enrolment issues for self-employed workers.
He said: ‘One ongoing concern is how the self-employed are left out of the auto-enrolment pensions savings system, which allows employed workers to benefit from company top-up contributions to their pensions.
‘Something to look out for in the upcoming Budget is a pensions grant system where the Government could incentivise the self-employed to save for the long term.’
Reports have also surfaced suggesting the Government is looking to dilute the 0.75 per cent cap on annual management fees. The cap was introduced back in 2016 to help auto-enrolled workers ensure their pension pots were not eroded by sky-high plan charges.
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