WE have had some worrying reports in recent months showing how little people understand their own pensions.
Well, just when you thought it couldn’t get any worse, it has: a new report published last week by the pension administrator EQ reveals that nearly half of UK workers who are saving into a workplace pension don’t realise they are doing so.
EQ surveyed 2,000 adults and found that less than half knew or believed they were saving into a pension.
The official figures from the Office for National Statistics (ONS) shows that actually, nearly 90 per cent of us are.
The ONS recently urged people to be more aware of their pension saving when they discovered that a massive £291 billion is lying untouched in dormant pensions.
We also know that, due to changing work patterns, people these days are tending to have many jobs, and more small pensions, during their lifetime.
The accountancy firm PwC said that the baby boomer generation (born 1946-1964) is now gradually being replaced by the millennials (born 1981-1996), and while the first group tended to stay in jobs long-term, millennials and younger workers tend to have six or more jobs during their career, often with a pension pot from each one.
In fact, the Pensions Policy Institute says the number of small pots in large auto-enrolment schemes, around eight million today, could be 27 million by 2035.
Even if we are keeping track of our pension record, pension advisers point out that one in five of us saving into a pension do not know how much we have got saved, and even more of us (around a third) have no idea how much we will need to live on when we retire.
They said that many people who said they would like to have a £20,000 a year income from their pension savings believed that savings of £100,000 would be enough; in fact, that amount would provide just £7,000 a year in income.
Even adding on a full state pension as well, their total income, at £16,000 a year, was still far short of their target.
The reality is that to achieve £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.
The government is aware of this growing problem, where people are ignoring their pension saving, and losing track of small pension pots when they move jobs.
They are proposing a ‘pensions dashboard’ that will keep all your details of all your pensions in one place, but that probably won’t arrive for another five years.
Another idea to address the national epidemic of lost pension pots is to introduce a ‘pot follows member’ system, where savings from your last pension transfer into your new one when you move jobs.
The simpler short-term solution to all of these problems is to sit down with a professional independent financial adviser, who can track your pensions, tell you how much you have saved so far, and work out how much you need to be saving to have the lifestyle you want, when you retire.
The last word should go to the EQ spokesman who summed it up thus: “It is evident, however, that pension saving is still not on the radar of many people, even if they are actually making contributions to their retirement fund.”
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
