Article by Phil
Financial advice pensions are needed for contributions.
That’s because less than 20% of workers have any idea how much they are paying into their pension.
That’s according to the latest survey from Hargreaves Lansdown. Considering the importance of financial advice for pensions in securing your financial future, that really is a shocking figure. It’s slightly better for over 55’s, with only 66% not knowing, whereas under 35’s are clueless with only 10% knowing how much they are contributing.
Most people thought they were paying in between £200 and £300, which would be a 15% contribution. Some people thought they were paying in over £2000 a month!
That’s why, according to Charles Stanley 90% of enquiries to financial advisors are asking about retirement advice. 65% ask for investment advice whilst 40% are looking for tax planning advice.
Pensions Dashboard might help?
As we’ve reported before over half of workers are confused by their pensions, especially those with multiple pensions. The launch of pension dashboard by pension providers is likely to help. Over 16 million people are expected to use dashboards to manage their pensions, including transfers, when they start to be launched next year.
It’s the under 35’s who say they will be helped the most, with 66% saying they are confused by the current system.
60% of workers think that dashboards might help them to find their lost or missing pensions. Hopefully they will. 50% say that they will be able to see their contributions more easily, which is clearly needed. 31% say that they intend to use dashboards to consolidate their pensions. But this is where the concern lies.
Without financial advice pensions transfers may well lead to workers paying higher charges.
Moving jobs creates higher pensions.
According to research by Wealthify, people who have changed jobs more than four times in the last 10 years have an average of £15,000 in their pension pot over and above those who stayed in the same job. The reason is that changing jobs regularly tends to lead to higher salaries and therefore higher pension contributions.
The research found that the average salary of the worker who had more than four jobs was £39,000 over £9,000 more than the average. Doesn’t say much about worker loyalty, does it? But the “job hoppers” tend to have their pensions scattered across various schemes. So, they are likely to be keen on the launch of pension dashboards.
Still, nearly 40% of 60- to 75-year-olds are still working.
FT Adviser looked at some of the reasons why so many retirees are either still working or have gone back to work. Some of the reasons include:
- 37% are having to live off their Defined Contribution pensions rather than the older and more generous Final Salary pensions.
- Many didn’t save enough for retirement. Only saving 8% of their salaries rather than the recommended 15%. The self-employed are particularly affected by under saving.
- 10% are renting rather than owning their own homes. Renting costs much more of course.
- 25% are still supporting their children. 15% their grandchildren and many are supporting their parents.
So, when do people expect to retire?
Well, according to Hargreaves Lansdown research:
- 20% of people think they will retire before they are 60
- 25% think they will be between 61 and 65, but
- 33% think that they won’t retire until they are between 66 and 70
- Whilst 16% have no idea.
However, people don’t start planning for retirement until it’s too late. SJP found that retirement planning only became a priority for over 45 year olds. Their financial advice pension analysis showed that someone saving £5,000 a year into their pensions from the age of 30, could expect to have over £120,000 more in their pension pot than someone who started saving the same when they were 40.
Could people retire earlier?
Well, according to Oxford Risk the answer is yes. They estimate that people could retire two and half years earlier than the current average, if investors held less in cash and more in investments. Their research found that investors hold more cash than they should for emotional rather than rational investment reasons. In that it makes people feel safer. But at the expenses of potentially better investment returns.
The latest report shows that over the last 12 months the average savings rate was 2.93%, whilst over the same period the FTSE All Share Index returned 9.9%. Over three times more. Experts have worked out that if those cash savings had been invested they would have returned an extra £160 billion over and above the interest earned on savings.
