RETIREMENT REPORT ADEQUATE SAVINGS INDEX

Transcription

1 RETIREMENT REPORT 2017 ADEQUATE SAVINGS INDEX

2 Since 2005, the annual Scottish Widows Retirement Report Adequate Savings Index has provided a barometer of retirement savings levels across the UK. Over the last 13 years, our findings have shown how a global economic crisis and changes to pension policies have affected the nation s savings habits. With retirement savings ever-more important for younger generations, this year, for the first time, our Index includes those aged to discover to what extent the youngest working generation is preparing. This is the second of three Retirement Report chapters.

3 SCOTTISH WIDOWS ADEQUATE SAVINGS INDEX HISTORICAL TRENDS IN SAVING FOR RETIREMENT 56% 56% 56% 55% ADEQUATE SAVINGS OVER THE YEARS 46% 49% 51% 54% 48% 51% 46% 45% 53% Q4 The Pensions Act 2004 increased security for members. Q2 Pension Tax Simplification modernised the tax rules for pensions, increasing individual choice and flexibility. Q3 Credit crunch begins as bank lending slows dramatically. Q2 Finance Act 2011 changed the rules on annual and lifetime allowances, annuities and income drawdown. Q4 The Pensions Act increased the state pension age to 66 and included measures to help companies autoenrol into a pensions scheme. Q4 Auto-enrolment begins for the UK s largest employers. UK enters double dip recession as economy shrinks for second quarter (later revised). Retail Distribution Review comes in, changing the way financial advisers are remunerated for giving advice The Pensions Bill: sets out provisions for single-tier state pension and rising state pension age. The Budget: consumers to get greater flexibility in how they use their pension pot. Auto-enrolment staging begins employers with less than 30 employees Q3 Auto-enrolment staging begins for employers with employees Q2 Auto-enrolment staging begins for mid-sized employers with employees PENSIONS POLICY MILESTONES The Scottish Widows Adequate Savings Index measures how many people over the age of 30 are preparing adequately for retirement. This means those saving at least 12% of their income or expecting their main retirement income to come from a Defined Benefit pension. All data based on those aged over 30.

4 ADEQUATE SAVINGS LEVEL STALLS AT 56% FOR THIRD YEAR IN A ROW 37% 56% 10% 37% of people have joined a pension for the first time since auto-enrolment was introduced Level of adequate savers stalled at 56% 10% increase in adequate savers since 2012 IN OUT 18% 82% 58% 18% are not saving anything for retirement 82% saving something into a pension 58% commit to staying enrolled when contributions start to go up from April 2018 There is no doubt auto-enrolment has been a success in kick-starting the savings habit for millions but it is not a silver bullet. Auto-enrolment may well be lulling people into a false sense of security that they are putting away enough for a comfortable retirement. For many, that is simply not the case, particularly given retirement is looking more expensive than ever. We also need to ensure we don t see a rise in opt-out rates as minimum contributions levels increase from April Catherine Stewart, Retirement Expert at Scottish Widows All data based on those aged over 30.

5 70% OF UNDER 30S FAILING TO SAVE ENOUGH FOR RETIREMENT 23,000 15,000 Those aged expect to need just over 23,000 per annum for a comfortable retirement At current savings levels they will receive an 8k per year shortfall 80% of year olds are paying something into a pension 80% 48% Half (48%) first started paying into a pension because of auto-enrolment 49% Less than half committed to remaining enrolled when contributions automatically increase from next year 20K+ They have twice as much debt, on average owing more than 20,000 37% 21% 37% have student loans eating into their monthly pay cheques 21% have unpaid credit card bills Young people have many competing financial priorities which can make it difficult to save for the long term. However, it s also clear that there is a lack of awareness among young people about how much they should be saving to achieve the income they expect to need in retirement. At current savings levels, they ll be 8k short each year. Catherine Stewart, Retirement Expert at Scottish Widows

6 REGIONAL TRENDS IN SAVING FOR RETIREMENT HOW MANY PEOPLE ARE SAVING ADEQUATELY? HOW MANY PEOPLE ARE SAVING NOTHING FOR RETIREMENT? MOST 59% 19% 21% 15% 23% 19% 11% 19% 26% 17% 25% 19% 7% LEAST 46% 49% 64% 64% North East North West Yorshire and the Humber East Midlands West Midlands East of England London South East South West Wales Scotland Northern Ireland 53% 48% 55% 67% 52% 60% 52% While overall adequate saving levels have stalled for the third year in a row, the regional picture tells a far more varied story, revealing a divide in how well people are preparing for retirement. Catherine Stewart, Retirement Expert at Scottish Widows

7 WHAT AN INDIVIDUAL WOULD NEED TO CONTRIBUTE MONTHLY TO ACHIEVE AN INCOME OF 23K A YEAR IN RETIREMENT 1,600 1,400 1,200 1, Age at which you start saving into a pension 55 While retirement may feel like a long time away for those in their 20s, it s really important they start to think about their later years as soon as possible. Starting early allows savings time to grow and provide a reasonable income in retirement, which is especially important as it is currently less likely that generation rent will have property investments to provide additional financial back-up. Catherine Stewart, Retirement Expert at Scottish Widows

8 RECOMMENDATIONS 1. MAKE PENSIONS INCLUSIVE FOR LOW EARNERS Britons can only start to benefit from auto-enrolment when they are earning over 10,000 a year. This means lower earners, those working part-time or in multiple jobs miss out on valuable employer contributions into a pension. Young people starting out, those who have caring or parental responsibilities and women are most impacted. This unfair barrier needs to be removed to ensure everyone can kick start their savings with support from their employer. But we want to go further. Everyone should benefit from auto-enrolment even those who can t afford to contribute. The Government and industry needs to explore how these people can still receive an employer contribution, while not discouraging others from making personal contributions. It is vital we tackle this thorny issue if we are to make inroads into closing the savings gap. 2. MINIMUM CONTRIBUTION LEVEL LULLING PEOPLE INTO FALSE SENSE OF SECURITY INCREASE TO 12% BY 2020 While minimum pension contributions will rise to 8% (employee and employer combined) in April 2019, from 2% now, this is not enough to provide an adequate income in retirement for most. We have calculated that 12% of salary (employee and employer contributions combined) is an adequate savings level - the Government should make this the new minimum contribution level into a workplace pension by DIGITISE PENSIONS TO ENGAGE YOUNGER SAVERS Ensuring people embrace the savings habit as young as possible is the key to closing the savings gap. To do this the industry must make significant investment in digital innovation we need to reflect the way young people engage and do it quickly or we risk turning off a whole generation to long-term savings. Scottish Widows has invested 80m in digital innovation and continues to invest. We are developing interactive digital services easily accessible on phone, tablet or computer, to help people manage their savings, and have created 1-minute Pensions Basics videos to help educate. 4. TACKLE ONE-SIZE-FITS-ALL APPROACH TO ENCOURAGING SAVING Our research shows customers want support that is tailored to their life-stage and personalised. A one-size-fits-all approach doesn t work. We need to recognise that age isn t the only factor in determining where someone is on their savings and retirement journey you can be middle-aged and saving for the first time due to auto-enrolment, or you might be a young person earning a good salary and able to save a higher proportion of your income. We are investing significant resource to tackle this issue to ensure we can help our customers when they need it most. 5. GOVERNMENT EDUCATION CAMPAIGN While lack of engagement with pension savings in the UK is a crucial issue facing the industry, the level of basic understanding also remains low. For example, people believe they could lose their pension when they change jobs, or if the employer goes out of business. We would like to see the Government s new public guidance body make busting these myths a priority, through a public information campaign an initiative the whole industry could get behind and support.

9 ABOUT THE RESEARCH YouGov Plc. conducted polling for the Scottish Widows annual retirement report. Total sample size was 5,314 adults. Fieldwork was undertaken between March 31st, 2017 and April 11th, The survey was carried out online. The figures have been weighted and are representative of all UK adults (aged 18+). In May 2017, Chapter One of the Retirement Report focused on the link between retirement savings and mental wellbeing. You can download the report here.