People find pensions alienating and knowledge about saving for retirement is ‘woeful’ across the generations, new research has found.
Eye-opening statements culled from focus groups reveal that understanding of how pensions work is poor, levels of mistrust are high, and many people plan to rely on their homes to fund retirement.
‘I think the word pension scares a lot of people, it’s got a bad feeling,’ said one middle-aged participant in a focus group. ‘Pensions are unreliable,’ and ‘It’s just like a minefield,’ others told meetings laid on by the Wisdom Council, which provides consumer advice to financial firms.
Find more quotes revealing what people REALLY think about pensions below
Damning report: People find pensions alienating and knowledge about saving for retirement saving is ‘woeful’
The report concluded that people are saving too little and ‘crying out’ for education, but any help needs to be timely, relevant and engaging – and meanwhile the pension industry feels alien to them.
It also found people were over-reliant on family homes as a principle source of funding in retirement, even though research has shown only a small minority sell property to free up cash in reality.
The Wisdom Council research found:
* Around 40 per cent of millennials in the study think they have a typically more generous final salary – also known as ‘defined benefit’ – pension which pays a guaranteed income until you die.
How was the research carried out?
The Wisdom Council surveyed 2,000 people from different backgrounds across the UK. The study included some retirees but was mainly focused on younger generations who are still saving for old age.
It also held focus groups to find out more about individual views. Millennials are defined in the research as 18-34 year olds, Generation Xers as 35-54 year olds and baby boomers as people aged 55-plus.
The report was supported by BlackRock, HSBC, Standard Aberdeen, St. James’s Place, Investec, Columbia Threadneedle and PIMFA (Personal Investment Management & Financial Advice Association).
The latest ONS figures suggest that fewer than one in five under-29s actually have some element of final salary pension within their savings.
Most people now save into ‘defined contribution’ pensions, where savers take all the investment risk while building pots during their working years, and throughout retirement as well unless they opt to buy an annuity providing a guaranteed income for life.
* Overall, some 39 per cent of people cited equity in their house as their principle source of funding to support retirement.
The breakdown was 46 per cent among baby boomers, 43 per cent among Generation Xers and 25 per cent among millennials.
That is despite many in the younger generations struggling to get on to the housing ladder in the first place, and older generations facing the risk of having to sell their homes to fund social care,
Many people who invested in rental property are now ditching their buy-to-lets as tax changes have made squeezing an income out of them more challenging. Read more here.
And the Wisdom Council cited research from the Financial Conduct Authority showing that just 3 per cent of people use money from downsizing or releasing equity from their home to support themselves in retirement. See the table below.
Relying on property: Few people sell the family home or release cash from it in reality, according to FCA research (Source: Wisdom Council)
* Awareness of how tax relief boosts pension savings is very poor across generations, with only one in five recognising this as a benefit of being in their work scheme.
Pensions tax relief allows everyone to save for retirement out of untaxed income. The Government ‘top up’ you get into your pension is based on income tax rates of 20 per cent, 40 per cent or 45 per cent. Read more here.
* Around half of those surveyed understood the value of taking greater risk for greater returns, but risk aversion was strong even though many are taking unintended risk through their reliance on cash – which gets eaten away by inflation – or their family home.
* More than 60 per cent of people expect to retire by their 60s, but 38 per cent see full retirement happening beyond 70, amid a rising expectation that it will not be an immediate event but more likely a period of transition.
What do people say about pensions and their plans for old age?
‘Pensions are unreliable – there was a bit of a scandal with pensions where some people’s got wiped out’ – Gen Xer
‘I told my kids not to bother with a pension’ – Gen X-er
‘A mate rang me up and told me about this Bitcoin… and I bought it for a few hundred quid and I thought what’s the worst that can happen it’s just equivalent to a night out’ – Millennial
‘Unless you work in the city, have a fantastic job… your private pension is worth nothing, it’s not worth doing’ – Gen X-er
‘The problem is there’s not a lot of clarity about pensions per se… I’ve looked into them and it’s just like a minefield’ – Gen Xer
‘We don’t know these terms so are just guessing. Is the Defined Contribution your contribution into your pension and the Defined Benefit is what the company matches?’ – Millennial
‘I plan to sell my home, move out of London, buy a property to live in and another to rent out and that will be my pension. I think the best plan long term is to put it into bricks and mortar’ – Gen Xer
‘I think the word pension scares a lot of people, it’s got a bad feeling’ – Gen Xer
‘I don’t think with the problems with the banks you can always trust it so I’ve tried to be box clever and invest in other things like vintage watches’ – Gen Xer
‘They’re an alien thing pensions. You pay that money and you get it when you’re older. Other than that I don’t know much more than that’ – Millennial
Dawn Hyams, head of investor insight at The Wisdom Council, said: ‘We talk to investors on a daily basis through our work, and even we were surprised by the huge gap in pension understanding.
‘It isn’t that customers don’t want to know – they were hugely engaged in the focus group sessions we ran – but they are still at a loss when it comes to most communications around their retirement savings.
‘Providers are making huge efforts on language, but the industry is still too quick to jump into the detail.’
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