April 30, 2018
The start of the new tax year sees the minimum contributions of workers in auto-enrolment pensions rise from 1 per cent of their income to 3 per cent. Employer contributions have also increased from 1 per cent to 2 per cent.
From April next year, the rates will rise again: 5 per cent from the employee, and 3 per cent from the employer in a bid from the Government to ensure that all workers will be able to afford a comfortable retirement.
Saving into a pension can be one of the most important decisions for any individual for enhancing their financial lives post-retirement. Despite this, an independent IPSOS Mori survey of more than 2000 people, on behalf of Fairstone, one of the UK’s largest Chartered Financial Planning firms, shows that, overall, respondents were unprepared for retirement with a worrying 52 per cent of respondents admitting to not currently having a retirement plan in place.
What’s more, when asked to comment on whether they had heard of seven different terms relating to pensions, a surprising 30 per cent had not heard of any them and only 16 per cent were aware of the 2015 pension freedoms.
As might be expected, the higher the age range, the more familiar respondents were with these terms. However, with the recent focus on providing personal finance education in schools and the publicity surrounding the 2015 pension freedoms, the survey results are a cause for concern.
On a more positive note, of those respondents with a pension plan in place, 82 per cent held a company or workplace pension, and 35 per cent had either a personal pension or SIPP, showing that the Government’s encouragement to contribute into a workplace pension is working.
Commenting on the results, Angela Murfitt, Chartered financial planner at Fairstone, says: “We were very surprised to see the low number of adults who have a retirement plan in place. With a constantly changing pension regime in the UK, we can understand that complexity can be off-putting, but we firmly believe that pensions are still a generous tax planning tool and can provide for a more comfortable retirement.”
She continues: “It is important to look across the spectrum of options and the pension freedoms of 2015 have done much to open different paths for savers. However, with this additional choice, we have seen confusion from those approaching retirement age around what the changes mean for them and how to make the right choice for their circumstances. Seeking quality financial advice is vital during this process.”
The uncertainty around pension freedoms is emphasised by Fairstone’s research which shows that of those questioned, only 25 per cent had taken some of their pension as a lump sum and just 3 per cent had cashed in their entire pension.
The Government’s commitment to auto-enrolment is a positive step in the right direction and figures produced for the BBC suggest that someone who pays into an auto-enrolment pension from the age of 25 could eventually earn an annual income of up to £18,000 a year, on top of the state pension. However, this isn’t the end of the story and the right financial advice could leave those saving towards their retirement in a much stronger position when the time comes to retire.
Lee Hartley, CEO of Fairstone, adds: “We understand that pensions are a complex area of savings, but we would urge people to seek advice and not ignore such an important part of planning for retirement.”