Pension Awareness Day: savers urged to engage with pensions

Concerns persist that UK workers are not saving enough for the future ahead of Pension Awareness Day on 15 September

Savers are being urged to get on top of their pension savings ahead of Pensions Awareness Day.

The annual day, first marked in 2014, encourages savers to get help with their retirement saving. More people than ever before are saving for retirement thanks to auto-enrolment, which automatically puts workers aged 22 and over who earn more than £6,032 into a company pension scheme.

But research has shown the majority of people are still not taking an interest in where their pension is invested or how well their money is growing – two thirds of people who have been auto-enrolled don’t even realise they are contributing to a workplace pension scheme.

Nathan Long, senior analyst at Hargreaves Lansdown, says: ‘A better retirement doesn’t require a PhD in pensions, start off simply by checking the value of your pension once a year.’

Research by Hargreaves Lansdown says savers typically become more engaged with their savings when their pension pot breaches £5,000. Half of those using a Hargreaves Lansdown Workplace Pension who have less than £5,000 are engaging with their pension plan, compared to three quarters of those with between £5,000 and £10,000 saved.

Calling it the so-called Boredom Threshold, the fund supermarket warns that workers earning an average salary and contributing the minimum amount to their pension could take nine years to reach this point though.

Currently workers only have to contribute a minimum of 5 per cent of their salary to a pension – 2 per cent of which comes from their employer – but experts advise putting away closer to 15 per cent of your salary to ensure a comfortable retirement.

Kate Smith, head of pensions at Aegon, explains: ‘Based on average earnings of £27,040 a year, this means saving around £340 a month. But, as pension contributions attract tax relief, the change in take-home pay is only £272 a month for 20 per cent income tax payers.’

There are particular concerns about the growing army of self-employed workers, with fewer than a third of the five million self-employed in the UK currently contributing to a pension pot.

Smith adds: ‘The self-employed are not so lucky as they don’t have the benefit of an employer contribution, so it’s even more important they start saving early. Saving £100 at age 25 is considerably more valuable than doing so at age 55 due to the magic of compound interest.

‘The longer people delay saving, the more money they have to save later to make up the shortfall, which could put their retirement in jeopardy.’ 

There are also concerns that many women could be left with a shortfall when they reach retirement. Women typically earn less and are more likely to take career breaks than men, meaning they tend to save less over the course of their working life.

Analysis from Fidelity suggests there is  typically an 11 per cent gap between men and women’s future savings.

While the average man currently aged 25-34 is likely to have a pension pot worth £142,836 by the time they reach age 68, the average women will have built up a pot of just £126,784.

That’s particularly concerning as women have a higher life expectancy than men, meaning their savings need to last longer. More than half of women do not know where their money is being invested and more than a third don’t know how much their pension pot is worth.

Fidelity says women who are able to contribute an extra 1 per cent of their salary to their pension would be able to close the gender pension gap by the time they reach retirement.

Maike Currie, investment director at Fidelity International, says: ‘Taking this one small step could have a significant impact on finances in later life.’

Ahead of Pension Awareness Day on 15 September, savers are being urged to take some time to make sure they are on top of their retirement savings.

Workers should be sure to track down any lost or forgotten pensions. With the average person now set to have 11 jobs throughout their working life, it’s easy for workplace savings to get lost. One in five people with multiple pension pots have lost track of one of all of them, according to Aegon.

The Government’s Pension Tracing Service can help provide details of old schemes if you don’t have any paperwork. Consolidating your pensions into one place can make them easier to manage, but it’s important to check you won’t be giving up any valuable benefits by doing so.

Long adds: ‘It also helps to check where you are invested as most default pension funds only have around two-thirds of their assets invested in the stock market.

‘Other investment options will be available in most workplace pensions and most broker have a list of top funds available and provide tips on how to choose something that suits you. For those who lack the time or confidence, paying for financial advice can be worthwhile.’

Simple steps ahead of Pensions Awareness Day

Track down all of your pensions – find all of your old paperwork and track down any lost pension pots so you know exactly how much money you have saved and where it is. It may be worth seeking financial advice to decide whether consolidating your pension pots is a good idea.

Update your contact details – make sure your address and phone number are correct so your pension providers are able to contact you. The government estimates there is more than £400 million in unclaimed retirement savings. You should also update the details of who benefits when you die.

Up your contributions – if you can increase the amount you are saving you could significantly boost the value of your pot by the time you reach retirement age. The minimum contribution for auto-enrolment is currently 5 per cent – 3 per cent from workers and 2 per cent from employers – but experts recommend saving at least 12 per cent of your salary. Ask your employer if they will contribute more and work out if you can afford to up your own payments. Online calculators can help you work out how much you need to save to build up enough money for the retirement you want.

Check your investments – when you are enrolled into a workplace pension scheme you are typically put into a so-called default fund unless you request otherwise – but these are often not the best option, as many have a cautious approach to investing. Find out which funds and investment trusts are available in your scheme and decide where you want your money.

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