For many Brits, the thought of retiring causes anxiety, as people worry if they will have the pension needed to retire comfortably.
A survey conducted by the Scottish financial planning firm Waverton Wealth Planning found that 77% of people believe they will be worse off in retirement than their parents or grandparents. The poll showed the disturbing disparity between where many would like to be positioned for retirement and where they believe they will be.
However, the larger issue is how workers got here and how this might be amended. A growing concern is that many lack the full understanding needed to comprehensively manage their pension, however, this knowledge is crucial when considering how it will support you later in life.
A study conducted by Finder UK found that 43% of people did not know what size a healthy pension should be. The 55% who gave an estimate thought up to £100,000 would be enough, and the majority did not believe this amount would be attainable. However, this figure is significantly less than the recommended amount for a comfortable retirement which is between £260,000 and £445,000 depending on the individual accommodation costs.
This makes the results of Wavertons poll increasingly worrying as the amount many believe to be unattainable to them may be just a fraction of what they will realistically need.
This disillusionment may come from the lack of awareness and knowledge which the public have when considering pensions. According to Lindsay Murphy, a 21 year old Marketing Graduate working part-time with Waverton, this may stem from the fact much of the advertisements surrounding pensions address the elderly or those who already have a pension in place.
Lindsay stated that “you’re rarely shown how you get a pension, you just know you will eventually have one in retirement – having this knowledge could cause more people to get one sooner”.
Lindsay claimed that while her University provided a class on personal development, where they discussed mortgages, loans and money management, no one mentioned the importance of having a comprehensive pension. This may lead to the disparity we see between the amount people will require and the amount they foresee having as the education is lacking.
According to Lindsay, having a shortage of awareness to pensions, particularly in an environment where future finances are discussed, does young people a disservice. Lindsay states that “young people are less likely to seek out the information they need if no one is telling them they need it”.
Of course, this is not an issue exclusive to the younger generation seeking a pension, as even those who have been contributing to a retirement fund for years may be unaware of how much they have saved.
This is seen with Laura Jarvie, a 37 year old NHS worker, after postponing getting a pension until she was in a secure job, Laura has been making regular contributions for almost a decade.
Despite contributing to two separate pensions Laura believes her lack of knowledge about her payments and the size of her pensions will cause it to “fall short” of the amount she needs.
Access to this information has been sparse for years, however, Laura believes that the introduction of Auto Enrolment has accelerated the issue. Laura commended the scheme as it “makes contributing to your pension far easier…you don’t need to think about it and it just comes off your salary”. However, she then went on to say that while the scheme allows you to have a pension with little to no fuss, it certainly doesn’t “make you want to find out more.”
In the same vein, Lindsay commented on the impact of Auto Enrolment and stated that while it offers a necessary safety net it may also “cause laziness, especially if it’s all just done for you”.
Nigel Payne, a 52 year old Senior Paraplanner at Waverton, discussed the importance of knowing how to manage your pension and noted that Auto Enrolment encourages the notion that “pensions should be a second thought and not something you need to worry about”.
This lack of prioritisation of pensions which the scheme encourages may be one of the factors which persuades workers to share the same worries as Laura, Lindsay and Nigel who believe will be worse off in retirement than their parents.
Nigel went on to discuss the generational changes that have occurred in the past few decades that lead to the pensions of the children not comparing with that of their parents. He first spoke of the conflicting economies that the two generations have experienced claiming that the economy in the past was simpler to navigate. Gilt Yields were higher when his parents were contributing to their pension, which meant that the pension funds they saved converted into a higher pension income when they retired. £100,000 now buys a lot less pension that it used to 20 or 30 years ago.
He then went on to discuss the different view people had of their retirement funds, he stated that in the past, workers did not need to have a thorough understanding of their finances to accumulate the amount necessary for a comprehensive pension.
He considered the different culture of money which the past boasted, when it was the norm to have substantial savings, whereas “people no longer save like they used to”. He suggested this may be in part due to the popularity of using credit for larger purchases.
Laura discussed this when she noted that the use of credit has taught people that “when they need money it will be there, its become so easily available”, and perhaps this safety net has created a more laxed opinion of savings. It is this that caused Nigel to believe that people nowadays are more likely to “want a lot more a lot faster”.
It is this environment that means we now need to make a conscious decisions to monitor and understand our finances as it is not second nature to save, nor is it safe to allow your finances to become a second thought in our more turbulent economy.
This has caused Nigel to believe that workers now need to “put in more effort to not get as far”. It was a similar thought that urged Laura to believe her pension will be lacking in comparison to her parents.
Laura referred to her parents as being part of a generation that “always had money put aside for a rainy day”. This is not as common in today’s economy; people are less likely to sacrifice parts of their income for the future as there are always more immediate needs or wants.
Another important trend to consider which existed at the time of your parents working life was discussed by Lindsay who spoke of the current assumption that workers should try multiple jobs until they settle in one. She noted that “nowadays to get ahead it has become the norm to jump between jobs in our careers to gain different experiences”. In the past, however, it was far more common to graduate and enter directly into a job where they would stay for the majority of their career.
This job stability made it considerably easier to navigate a pension as it was always within the same company, particularly as Nigel noted, many chose the position which had the strongest pension plans attached to it.
This was looked at more closely by a Gallup report on the millennial generation which revealed that 21% of millennials admitted to changing jobs at least once in the past year, this was more than three times the number of the non-millennials they polled.
Lindsay claimed that this is what she believes pushes young people to postpone contributing to their pension as they are more likely to wait until they are settled in a job they consider to be secure. This job hopping also adds another layer of confusion to the management of pensions as it is not consistently within the same company.
While planning for retirement may be complicated and feel like a burden, it is undoubtedly important. Understanding your pension, and having this control over what life after retirement will look like can alleviate the stress that comes with planning for the future. According to Nigel, a pension is one of the only investments where your money is constantly working harder for you.
He states that a pension is a basic necessity that we will all need, and urges people to “take control of your pension…you will need it one day, why rely on the state to take care of you when it’s in your power to do it yourself?”.
However, this often does not sound appealing, the lack of awareness awarded to the subject means few know where to start looking and when they do they are bombarded with jargon and figures that they were not offered the resources to understand on their own.
Lindsay Murphy explained this issue when she said “we’re not told when the ideal time to look is, and then when we do want to get on top of it we’re not told where to look or what we’re looking for”. This means that the eventual findings of many workers simply do not ease their confusion.
One solution to this was presented by Laura who called for education on pensions to start in Highschool, she explained that few people “want to research pensions, and the ones who realise it’s important always find something else to look at and prioritise”. The exposure to pension advice early on could result in a generation knowing exactly how to plan for their retirement.
Meanwhile, Nigel believes that pensions need a “rebranding” to make them more accessible and appealing. This may encourage more workers to prioritize their pensions if it is not considered a chore.
These issues which surround pension management seem to bleed into other financial concerns. While talking with Lindsay she expressed her worries over the issue most prominent for her currently; saving for a mortgage. She spoke of the way changes in the economy have affected her plans of obtaining a mortgage. This is a common concern and is one shared by Laura who expressed a similar view.
Laura spoke of her worries of having enough to live comfortably whilst paying into a future mortgage. She commented on the lack of preparation she feels people get when they were younger around mortgages and managing your finances in a way that allows you to comfortably have enough to live off while making regular instalments to a mortgage.
This is very similar to why many avoid setting up their pensions, most have other financial commitments causing them to be reluctant to put part of their wages into their retirement fund. Nowadays it is very easy to find somewhere else to put that money, especially when you are not taught of the importance of planning for retirement and how greatly that will affect the quality of your life in the future.
Having these obstacles in the path towards a comprehensive pension, compared to past generations, leaves workers with a number of mixed emotions. 21-year-old Lindsay explained that the thought of gaining a pension, and making sure you are saving enough, is very stressful. This could largely be attested to the shortage of information that is exposed to younger people about how pensions work, causing graduates like Lindsay to feel as though they are already falling behind.
While Laura, who contributes to a pension that she confesses she “doesn’t know enough” about explains the feeling as being one of fear, as she realises that her growing pension may never be enough to allow her the same lifestyle as she enjoys now. This is a worry for many workers at this age, Finder UK found that 80% of millennials and 75% of Gen Xers do not believe their pension will be enough to grant them a comfortable retirement.
This spike in people not believing their pensions will sustain them, cannot be blamed wholly on the individuals lack of knowledge, even those who are informed on pensions may find themselves accepting that they will be worse off than their parents. Nigel Payne explained that this makes him feel “very bitter”; knowing that past generation did not need to have a thorough understanding of their pensions to accumulate the recommended amount while we now need to be conscious of our finances, but in today’s economy it will always be harder.
It is of course, ideal to contribute to your pension as soon as you enter the workforce, this allows it to gradually grow without feeling the stress of it looming over you. Nigel suggests that people should make “little payments, often” as it allows you to build your money through investments as it snowballs into a larger amount.
However, the older you are the more difficult it can feel to plan for a lavish, or even comfortable retirement, and many foresee a far more frugal lifestyle. This may not always be the case, as there are a few ways to turn your pension around later in life; through making larger contributions, working longer than planned and ensuring you are in the pension scheme most suited to you – although finding the information to manage this often proves difficult.
Waverton have attempted to close this gap and assist workers in understanding the size of their pensions, and consequently the quality of life they can expect after retirement, with their Snapshot program. This offers a free report which breaks down your pension, helping you to comprehend how much you have and whether it is suitable. Your unique report will highlight the three key elements of your pension – charges, investment performance and risk – these factors are vital when considering the efficiency of your pension, they have removed the confusion which dissuades many from looking into their pension by creating this straightforward, two-step process.
Pensions are far more complicated now than they were when many of our parents or grandparents retired. We live in a different economy, in a society where finances are not considered in the same way, and where pensions are not given the platforms they need to become a priority.
However, most people will need to have a pension, and while the state currently provides a pension, starting at an increasingly later age, this is often not enough. Your retirement fund is an essential investment in your future that you must contribute to. Life after retirement is not as far off as it may feel, and it falls on you to decide what that life will look like. More and more it seems that understanding, establishing, and growing your own pension is the most crucial way to have that autonomy.
By Abigail Harvey.
