Please Mind the Gap

In 2015, Deloitte reported that the UK savings gap would reach £350 billion by 2050 and that the annual savings gap per person, on average, was to increase between 2015 and 2050 from £8,000 to £10,000.

In layman's terms, the average person needed to be saving £8,000 more per annum, just to achieve an acceptable level of retirement income.

In late 2020, the OECD reported that the COVID-19 crisis had compounded the challenges facing retirement savings and added new ones.

The Organisation for Economic Co-operation and Development is an intergovernmental organisation with 38 member countries. It also reported that snow was white but were unsure if Elvis was really dead.

I think we all know instinctively things are going to be tougher for some, and so now is clearly as good a time as any from the "state the bloomin' obvious" brigade to publish reports that can most likely never be proved wrong.

Just because something is instinctively obvious however does not mean it should be ignored.

I include excerpts of these reports here not to cause alarm, because if you are reading this, you are unlikely to be part of the populace they are looking to scare into action.

Your children and grandchildren however are. And we can let them know just exactly how much they need to be saving now to eliminate that gap for themselves.

They can sign up to APCs cashflow website for free and then speak with me about the results.

https://apc.truthaboutmoney.co.uk/

OK, so onto the reports.

Are People's Retirement Income Expectations Adequate And Achievable?

Using its Longer Lives Index data, life company Phoenix recently explored in detail the adequacy and achievability of people's retirement income expectations

The key findings were:

The "Financially struggling" 4.6 million people (15% of defined contribution (DC) savers) expect an income in retirement of less than the Pensions and Lifetime Savings Association (PLSA) minimum retirement living standard. These are predominantly people with lower resources in working life and are more likely to be on low incomes or expect to rent in retirement.

The "Unsure" 5.8 million people (19% of DC savers) do not give an expected retirement income when asked. Many in this group will be disadvantaged by not engaging with pension decisions that will have important consequences for their retirement. This group is disproportionately those aged 45–54 and those who expect to rent in retirement.

The "Downgraders" 3.7 million people (12% of DC savers) expect at least the PLSA’s minimum income and look on track to achieve what they expect, but that income would be insufficient to maintain their pre-retirement standard of living into retirement. These are predominantly people with higher living standards in their working life, disproportionately those on middle and higher incomes, those who own their home (either outright or with a mortgage), and men rather than women.

The "Happily on track" 4.3 million people (14% of DC savers), reported an expected retirement income above the minimum income, look on track to achieve that income in retirement, and expect that income to maintain their living standards in retirement.

The "Undersavers" 12.4 million people (40% of DC savers) expect at least the PLSA’s minimum income, but Pheonix says that its modelling suggests they are not on track to achieve it. They are disproportionately those on middle incomes, with those who are currently renting but who plan to buy before retirement also overrepresented.

The report’s recommendations:

• Engage much more effectively in your future finances. Speak to an adviser if unsure :)

• Make working for longer more feasible, attractive and rewarding.

• Recognise that financial preparedness is about more than just pensions and savings.

To read the full report please see here.

No Pensions For 1 in 4 Over 40s

Analysis of the DWP’s Planning and Preparing for Later Life survey found that while most people had started saving for retirement, 24% of 40-75 year olds did not have a private pension, and 16% had not yet started saving.

Only 23% had an idea of the amount they would need to save for retirement, with the majority unsure.

People on lower incomes were less likely to have started saving for retirement. Around 32% of those with incomes of less than £10,500 had not yet started saving compared to just 1% of those with incomes of £44,000 or more.

People with higher incomes were more likely to expect to retire before the current State Pension Age (SPA), which is 65. For example, 54% of those with gross earnings of £44,000 a year or more expected to retire before the current Spa compared with only 36% of those earning below £10,500.

Similarly, people with savings over £100,000 were more likely to expect to retire before the SPA (15%) than those with no savings or those with savings under £15,000 (34%).

The survey provided evidence on how far individuals can make well-informed decisions about how and when to retire and whether they will be in a position to enjoy financial security when they do.

Many respondents reported being unable to afford to make contributions to their pension, with 53% currently without one.

And while this number will be less for under 40s due to new compulsory workplace savings schemes, the rates at which people are saving are much less, so expect the savings gap to keep growing and growing.

2022 Women and Retirement Report

According to Scottish Widows' 2022 Women and Retirement Report, women face growing challenges in preparing for retirement, with some groups, like single mothers, already £246,000 worse off compared to the average couple.

This shortfall comprises all wealth including pension savings, which average under £15,000 for lone parents, almost 90% of whom are women.

The report also shows that gender gaps in pay and pensions between men and women across the UK are worsening year on year; the average man aged 65 to 74 today has over £250,000 of pension assets, compared to less than £150,000 for the average woman.

The gap is widest among women in their 30s, with 19% saying they are saving nothing at all, compared to just 12% of men of this age.

Jackie Leiper, Managing Director of Workplace Savings at Scottish Widows, said: “Current economic conditions are making it harder than ever to fix the deep inequalities that underlie the pensions gap, with the retirement savings of women deeply impacted by key life events such as divorce or motherhood.

Providers, regulators and employers must collaborate urgently to address this crisis; from reconsidering the auto-enrolment threshold to far greater investment in childcare support; to help the most vulnerable in the near term.”