Research suggests many different factors are impacting on consumers’ efforts to accumulate sufficient pension savings.
According to various studies Covid-19, inappropriate use of pension freedoms, childcare responsibilities and sticking rigidly to auto-enrolment defaults are all affecting consumers’ pensions.
Scottish Widows says that the upheaval wrought by the pandemic has deprived low earners of £122 million in pension savings. This is because they have been forced to prioritise their essential bills over making pension contributions. The provider is calling for employers to be legally required to increase their own contributions to workplace pensions should an employee have to reduce their own contributions due to financial hardship.
Nevertheless, Scottish Widows also says that 61% of pension savers are now saving the recommended minimum of 12% of salary into their pension, which represents a record high.
Consultancy firm LCP has said that pension savers have lost £2 billion by cashing out their pension pots and investing the monies in savings vehicles paying rates of interest that are well below inflation. It calls for a change in the law that would allow retirees to access their 25% cash free lump sum without needing to access the remainder of the pot or place it into drawdown at the same time.
Provider Pension Bee has called for greater use of the Shared Parental Leave scheme, and for men to assume a greater childcare role in general. It believes that this could close the existing 38% gender pension gap between the amount the average man and average woman have saved for their retirement.
A joint study by consultants Lane, Clark and Peacock and fund supermarket Interactive Investor has identified a 33% drop over 10 years in the level of pension a young worker might expect when their retirement eventually arrives.
It says that, in 2007, someone who earned £22,437 per annum and commenced pension saving at age 22 with a contribution of 8% of earnings could expect to have a pot worth £236,800 at age 68. By 2017, this figure for the final retirement fund had fallen to £157,700.
The study also says that five in six employees are in their workplace pension’s default fund, which will often have a cautious risk profile and lower potential for growth. It says that these three strategies, if adopted by young employees, could all offset the decline in the expected final pension pot:
- Working an extra 10 years
- Retiring at the same age but moving their entire pension into equity funds
- Working an extra four years and investing 80% of their contributions into equities