ALARM bells are ringing again after further dark news about pension saving in the UK.
A lack of planning, a lack of knowledge, and just not getting around to thinking about pensions means that even those who are saving into a workplace or personal pension are still doing so passively.
We save according to the legal minimums required, rather than asking ourselves the crucial question: how much will I need, and how much must I save right now, in order to get there?
Before we come to workplace and personal pensions, let’s look at what we’ll get from our basic state pension.
We can put this in context by comparing the UK’s basic state pension to other countries. This should show how essential a second or third savings strand, such as a workplace or personal pension, will be.
In a landmark study, the Organisation for Economic Cooperation and Development (OECD) looked at the various state pensions in developed countries around the world. They worked out the ‘replacement rate’ for each, meaning what percentage of your country’s average wage you get from your state pension.
They stunned us all by announcing that, with just 29 per cent, the UK is absolutely bottom of the pile, behind even Poland and Mexico, and far short of the European average of 71 per cent.
Our reputation as the world’s ‘pensions miser’ is rubbed in further when you see the countries at the top of the list, who maintain nearly the full working wage with their state pension: with 102 per cent Turkey actually rises above it, as does the Netherlands with 100.6 per cent. India gives 99.3 per cent, Portugal 94.9 per cent and Italy 93.2 per cent.
In other words, while these countries maintain people’s standard of living measured by the average working wage, the UK cuts it by two-thirds.
With such a measly state pension, it’s clear that sorting out a plan based on other, parallel income strands is essential in the UK, much more important for us than for the Turks or the Dutch.
However, the pensions advice network Unbiased has done a survey that indicates our average target for our pensions savings is: “I have no clue”.
We are largely a nation of ‘no clues’, we simply have not sat down with an adviser to find out what a small, medium or large pension pot would give us, per year, when we retire. One in three of us don’t know how much savings we’ll need to support our retirement, and one in five have ‘no clue’ how much we have saved so far.
This applies across the age groups, with a consistent third of ‘no clues’ in the 18-34, 35-54 and 55+ groups. It would appear that, even as we get closer to retirement, we still don’t get around to making that plan. We are simply sleepwalking our way towards an unknown outcome.
Of those who did nominate an income level they would like, they also had ‘no clue’ about how much would be required. Seven in 10 said they’d hope for at least £20,000 per year, but nearly half of those who hazarded a guess thought savings of £100,000 would meet their needs.
The fact is that level of pension savings would provide just £7,000 a year, according to Unbiased. Putting that alongside the state pension, people would have £16,110 per year - still quite a shortfall on their target!
The report says that, in order to reach the magic figure of £20,000 a year, you would need the full state pension (now requiring 35 years of national insurance contributions), plus a pension pot of £170,000.
Do you know how much you have saved, how much you will need, and how much you should be saving today? Or are you a ‘no clue’?
Well, we don’t have any ‘no clues’ here. Within these hallowed walls, our office motto is ‘Life’s Better with a Plan’. Isn’t it time you stopped saving in the dark, and spent a few minutes with us, to make one?
:: Michael Kennedy and Shaun Doherty are independent financial advisers and pensions specialists, and can be contacted on 028 71886005. Further information on Facebook at Kennedy Independent Financial Advice Ltd or at www.mkennedyfinancial.com
