Pensions and retirement planning: knowledge is power for your future01 March 2023
In June 2020, the insurer LV= established the Wealth and Wellbeing Research Programme. This study tracks the behaviours of UK adults around their finances and wellbeing over what has been a period of significant market volatility and change.
The most recent insights from this study were published in December 2022 and make fascinating reading. The full report may be viewed here: wealth and wellbeing.pdf
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The programme reports each quarter on the indices used to track consumers' financial outlook and changing spending and saving habits over time. It's clear from the latest edition that millions of people are being affected by the cost-of-living crisis, although this is experienced in different ways between demographic groups. The figures from the Office for National Statistics (ONS) illustrated in the report add depth to the overall findings.
As part of their research on consumers' saving habits, LV= has studied the pensions knowledge of working adults and whether workers know enough about retirement to prepare for this important life junction. We talk more about life junctions in our book, Coming in to Land: Runway to Retirement, details of which may be found here: amazon.co.uk Keith Churchouse & Vicky Fulcher book
State Pension entitlement
As noted in the LV= report, one key element of most people's retirement income is the State Pension. The study found that one in four working adults (aged 18-54) has no idea at what age they will start receiving this benefit. Only 30% of those questioned claimed to know their State Pension age, with 45% noting that they only have a rough idea.
Building on this point, the study found that most workers did not know accurately how much the State Pension currently pays per week. Only 23% were able to answer correctly.
The full new State Pension is currently £185.15 per week (around £9,628 pa - paid gross but taxable), and this is expected to increase by 10.1% from April 2023, in line with the triple lock. For many, this forms the bedrock of their overall income planning in later life.
As the LV= report notes, these statistics are concerning, as it will be difficult for an individual to plan for retirement without understanding how much they will receive from the State Pension and from what age.
We would always recommend that an individual checks their State Pension forecast, both to understand their likely entitlement and to check for any gaps or errors. This can be achieved via the Government Gateway login or via a paper form. Further details may be found here: www.gov.uk/check-state-pension
Pension payments – knowledge and amounts
The LV= study found that nearly a quarter (23%) of working adults do not know how much they are paying into their pension. Again, this might present significant issues when it comes to planning for retirement.
14% of those questioned noted that they are not paying into a pension at all. On a more positive note, however, 25% of working adults are receiving 15% or more of their income into their pension when taking into account the combined employer and employee contributions.
Some fascinating statistics that really do get the mind ticking about future income and lifestyles when an individual decides to stop work and retire. With general longevity running into the mid-80s, there could be a good couple of decades in retirement.
Pension and retirement income planning is an evolving process, and the goal of a comfortable retirement is normally achieved through careful planning over your adult life (or even earlier if a pension was started for a child). A clear understanding of what might be available to you when you stop work, and what still needs to be achieved to reach your retirement goals, is vital.
If you would like to consider your pension planning, please contact the team at Chapters Financial.
No individual advice is provided during the course of this blog.
CFPTM Chartered MCSI
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