Pensions awareness day: Britons must save more

Marking pensions awareness day, savers and investors have been urged to consider saving far more for their retirement as the onus of responsibility shifts toward the individual.

According to a number of industry commentators, people throughout the UK are not saving enough to provide for their retirement as a mixture of misunderstanding and the slow switch from employer to employee responsibility continues to drive apathy.

Currently, the average UK pension pot is less than £40,000 while life expectancy beyond retirement age has increased from 16 years in 1990 to 20 years today.

Pensions specialist Portal Financial points to a number of misconceptions that it says continue to surround pensions as a reason for savers' lack of interest; particularly misunderstandings around tax, income and death benefits.


According to research conducted by the firm, many people don't understand that pension income is assessed against all taxable income for the year, while others believe that they are able to withdraw 25 per cent of their pot tax free every year, rather than once upon retirement.

In addition, Portal Financial says that many of those saving for a pension do not realise that they can start taking an income from their pot before they reach state pension age, at age 55, and others are often unaware that drawdown and unused funds can also be left to beneficiaries.

Commenting on the findings, Jamie Smith-Thompson, managing director of Portal Financial, says: 'Despite the increased level of debate around pensions following recent reforms, people are still confused.

'As an industry, we must find a way of providing clearer guidelines and more comprehensive information. Pensions awareness day is a great opportunity to educate the public and encourage them to save.'


Other commentators have pointed to the current move away from defined benefit pension schemes - where employees are guaranteed a certain level of retirement income - to defined contribution - which offers no guarantees - as a reason for apathy around retirement saving.

'UK pensions policy is at a crucial point in history. As we shift to defined contribution the burden of responsibility will increasingly rest on the shoulders of the individual. Our population is ageing, fertility rates are decreasing and the government is already heavily in debt. Let's ask the tough question: "Who will pay for future provision?",' says Rob Gardner, co-chief executive of institutional financial adviser firm Redington.

As part of his 'five-point plan for a healthier financial future', Gardner suggests that a new national 15 per cent savings target should be established, echoing the recent sentiments of Lord Hutton.

Pointing to China, where Gardner says people typically save 50 per cent of their incomes, he says that the UK has 'become a nation of consumers of borrowers' rather than savers, and that a cultural change is needed.

'We all want a certain and comfortable retirement, but the majority of us do not want to adopt a discipline of saving. Why not? Are we unsure about what we want, or do we lack the culture and collective mindset to overcome our need for short-term gratification?' he says.


To provide for their retirement, Gardner suggests people stop buying 'coffees and cigarettes' and instead save as much of their income as they can into a pension.

Gardner's other suggestions include establishing an independent pensions commission with the power to 'make real decisions', similar to the Bank of England, and improving financial education in schools and the workplace.

He also backs chancellor Osborne's calls for a simplified pension tax system, particularly the scrapping of the current tax relief system in favour of a 'pensions Isa' that employers, employees and the government could contribute to.

Matthew Phillips, managing director of Thomas Miller Investment, also urges people to think more about saving for their retirement, adding that employees should take advantage of government tax breaks and company pension schemes where possible.

'If you put in, the government gives some of the tax that they have taken from your income back to you and allows the amount invested to grow tax free. Many of us also have pension schemes provided by companies, and many of those companies will also pay in an amount.

'It is difficult to save when wages have been flat and costs have been going up, but even the smallest monthly amount, with the tax breaks available, will mean that when we hit retirement, we will not just be relying on the state,' says Phillips.

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