As a result of the UK pension reforms, those aged 55 and over have considerable more options to put their pension savings to work, or lose them. In a recent survey run by Towers Watson, the consultancy looks at how the public has adapted to the new rules, their wider opinion on the legislation, and their pension saving behaviour. The firm finds that respondents are worried that the reforms will lead to abuse, and that many are still not saving adequately for their golden years.
In April 2015, new rules for pensions were introduced in the UK, allowing those 55 and over to draw on their retirement savings, with the first 25% tax free. Towers Watson’s survey, titled ‘UK workers left vulnerable and in the dark about new pension reforms’, highlights that many working people (66%) lack adequate understanding of the new rules. Of those that do understand the new rules, 42% say they believe that the reforms will promote irresponsible spending and 26% are concerned that the changes will increase the possibility of fraud.
The survey shows that planning for old age remains an issue. Just over three-quarters (77%) of respondents say they need to talk more about their retirement planning, while 56% admit they rarely discuss their plan. Only 38% have had a conversation with someone on the issue in the last year. Around a third (34%) make ‘putting their pension money where their mouth is’ a priority, with the research showing that employees are on average saving £1,640 less of their salary annually than they think they should. This translates to saving 9.5% of salary instead of the ‘needed’ 14.3%.
“These findings show that people hardly ever discuss savings for pensions and retirement plans and, perhaps partly as a consequence, many UK workers are poorly informed about the Government’s recent pension reforms. This information deficit has the potential to store up major problems in the future, especially as our ageing population means there will be 15.5 million pensioners in the UK by 2030,” comments Fiona Matthews, Managing Director of LifeSight, Towers Watson’s master trust.
The group most keen to save for their retirement are 18-24 year olds. Savers in their 20s and 60s are found to have the most financial freedom and those in their 30s the most financial burdens.
“[…] there are signs that young people in particular are keen to address the retirement savings challenge by having more open discussions and increasing their level of understanding. This is a positive step as, more than ever, the onus is now on individuals to make sure they are saving for later life in order to take advantage of the new choices and freedoms that are available,” explains Matthews. “We strongly encourage people to reach out to their employers or pension providers to ask questions, find out about their options and get guidance on what they need to do at this stage in their life to make sure they are well prepared for retirement.”