Retirement planning is an incredibly important process that savers must undertake to ensure they have sufficient finances to support their lifestyle once they stop work. However, a worrying lack of pension engagement indicates that the UK has a crisis on its hands.
Failing to engage with one’s pension can have serious consequences for a saver’s future financial security. Yet, according to My Pension Expert’s research, only 38% of UK workers know how much is saved in their pension, while only a third (33%) have a financial plan in place for retirement.
As such, Britons could be exposing themselves to risks such as insufficient income when they hit their desired retirement age, delaying their retirement, and missing out on potential opportunities to boost their retirement income.
What is the cause?
The Government has taken positive steps in addressing this issue by introducing auto-enrolment; when an individual begins their career, they will sign up for a workplace pension and regularly contribute to their pension pot over the years. This allows them to begin saving for retirement without the hassle of physically transferring the money themselves.
That said, it can create a false sense of security. Once enrolled, savers may assume that they have done enough to secure their retirement, potentially resulting in them not feeling the need to engage further.
However, there are other factors that can contribute to low pension engagement. In some cases, it can be attributed to a lack of understanding about the significance of saving for retirement, as well as how much they really need to save. Recent research has shown that over one-third of Britons do not have a clear idea of the size of the pension pot that they will require to support themselves in their later years.
This can stem from a number of factors, such as a general lack of financial literacy, a failure to consider long-term financial goals, and a lack of awareness about the true cost of retirement. Additionally, the thought of financial planning in retirement can seem overwhelming, leading to some regressing to kicking the metaphorical can as far down the road as possible – a tactic unlikely to help anyone’s future finances.
Practical solutions
Simplifying the act of pension engagement and retirement planning is key here.
One government initiative aimed at achieving this is the Pensions Dashboard Programme, a digital platform designed to help people in the UK keep track of their pension savings in one place. The aim of the programme is to simplify the process of pension planning and increase engagement among individuals by providing them with a clear view of all their pensions, including the state pension, personal pensions, and workplace pensions, in a single digital portal.
And when it is finally launched, the programme has the potential to transform access to pension information pension in the UK.
That said, access to information does not automatically equate to engagement with – or understanding of – one’s pension. This is why it is so important for Britons to feel supported as they look to better understand their financial situation and any potential steps they can take to achieve the retirement they want.
And seeking independent financial advice can be a valuable resource to help Britons achieve just that.
Independent financial advisers, such as our team of experts at My Pension Expert, can assist savers in developing and engaging with such a strategy. Our advisers can help clients understand the various retirement finance products available to them and make tailored recommendations to set them on the path to achieving their retirement goals.
Neglecting to engage with retirement planning can have severe consequences, potentially leading to financial difficulties in the future. Therefore, savers must use all the tools available to them, including seeking advice from professionals where possible, to develop a robust retirement strategy that aligns with their individual needs and goals.