In a jointly issued research note, the Financial Conduct Authority (FCA) and The Pensions Regulator (TPR) say that they have identified the prospect of people not having an adequate income, or the income they expect, in retirement as “the overarching harm in the pensions and retirement income sector.”
Amongst those individuals currently in their 60s, the median individual has total pension wealth of £280,000, the top quartile has approximately £630,000 and the top decile more than £1.25 million. However, more than 10% of this age group still have no private pension provision of any kind. The average person aged 60 to 65 can expect to receive a gross income of between £14,200 and £17,000 per year in retirement, which is well below national average earnings. Only 24% of people in this age group are expected to reach a ‘comfortable’ target of £25,000 or more per year.
More alarmingly, half of UK adults in their 20s have no retirement savings, and half of those in their 30s have made pension provision of £30,000 or less. Amongst all age groups, 40% of UK adults of working age (over 14 million people) have no private pension wealth at all. Of those aged under 40, more than half (8.5 million people) have no pension provision and a further 30% have less than £10,000 in private pension savings. This means of course that only 30% of over 40s have £10,000 or more in pension provision, and evidently those with a pension pot of just over the £10,000 threshold will not be able to enjoy a lucrative retirement either.
Younger people are often saving to buy property, or are paying off student debt, or are faced with the costs of sustaining a young family. Think tank the Resolution Foundation says it would take a typical household in their late 20s some 19 years to save for an average-sized house deposit. Where the under 40s have an occupational pension scheme, it is highly likely to be one that offers minimal employer contributions.
The FCA has recently announced a review of the effectiveness of its Financial Advice Market Review (FAMR), which aims to make financial advice on pensions and other areas more readily available to the general public. Some of its pension-related recommendations included:
- The FCA should assist firms who wish to develop a streamlined advice service whilst still remaining compliant
- The FCA should establish an Advice Unit to assist firms wishing to develop automated advice models. Both streamlined advice and automated advice could be ways firms could offer retirement advice at lower fee levels – at present one of the reasons people do not save enough for their retirement could be that they feel they cannot afford professional advice
- The Treasury should consider allowing consumers to access some of their retirement savings in order to pay for advice on their retirement options
- The Treasury should assist the pensions sector in developing a pensions dashboard so each consumer can see all of their existing retirement provisions in one place
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article