Will your pension ship a cushty previous age? Savers are break up

Prosperous retirement: Those who are confident tend to hold investments beside a pension and own their home

Savers are split down the middle on whether their pensions will deliver a secure retirement, new research reveals.

Some 52 per cent of people with a pension invested to fund their old age are confident they will prosper, while 48 per cent are doubtful.

Young adults are the most optimistic about their financial prospects.

However, they are also more likely to fear climate and social change will make a comfortable retirement impossible, according to the study by Barnett Waddingham.

The consultancy firm found those who are confident tend to hold investments beside a pension and own their home, advantages which are both more prevalent among male savers.

One in five were confident because they are auto-enrolled into a pension – though the minimum investment level is unlikely to be enough for an affluent old age.

And 8 per cent said it was because they have a more generous final salary pension to fall back on.

Among those dubious about being well-off in retirement, the most common reasons were not saving enough, not earning enough, not having any other savings or investments besides their pension pot, and still having to pay rent.

Separate recent research from Scottish Widows found 21 per cent of over-50s and 28 per cent of adults overall don’t know much income they will need in retirement.

Their average estimate of the income needed to be comfortable in old age was £29,000 a year per household. This is far less than a widely used pension industry benchmark – see the box below.

Meanwhile, the Barnett Waddingham survey also found:

– A third of people set to retire in the next two years are not confident they will be financially secure

– Young savers are most confident about retirement, at 71 per cent of 18 to 24-year-olds and 61 per cent of 25 to 30-year-olds

– The least confident are 51 to 55-year olds, just 42 per cent of whom feel assured about their prospects

– Beyond 55, confidence jumps to 50 per cent or higher

– Some 4 per cent overall think they will never retire, rising to 8 per cent among those aged 61 to 65.

The firm polled 2,000 workers aged 18-plus who have a defined contribution pension. These take contributions from both employers and workers and invest them to provide a pot of money at retirement.

Unless you work in the public sector, they have now mostly replaced more generous gold-plated defined benefit – or final salary – pensions, which provide a guaranteed income after retirement until you die.

Defined contribution pensions are stingier and savers bear the investment risk, rather than employers.

Mark Futcher, partner and head of defined contribution pensions at Barnett Waddingham, says: ‘There are two key areas for concern. Firstly, a third of people planning to retire in a couple of years are going into that period of their life without confidence that they’ll be able to live comfortably.

‘And most people who are confident are such because of other wealth, property, or private and DB pensions. This is not much use to most young workers, who tend to have low savings, lower prospects of buying a house, and solely DC workplace schemes.

‘There’s two major solutions that policy-makers must pursue. The first is to improve the auto-enrolment system, by widening who it includes and increasing minimum contributions – including auto-escalation of contributions with pay rises and after career breaks.

‘The second is to hone in on the cohort approaching retirement, and work to ensure that people are able to confidently visualise their income and lifestyle after employment.’

Futcher says the burden should not and cannot fall exclusively to individuals, but he offers some suggestions to improve prospects of a comfortable retirement.

– Pay more into your pension, especially after career breaks.

– Check you receive the maximum contribution from your employer, particularly if they use a tiered structure.

– Use pay rises as a prompt to increase contributions, at a point when you won’t notice the impact on the amount you take home each month.

– Improve your knowledge by logging in to check your pension online, look at the Government’s Money Helper site or speak to a financial adviser.

How to sort out your pension if you fear it’s falling short

1) If you are worried about whether you will have saved enough, investigate your existing pensions. Broadly speaking, you need to ask schemes the following questions.

– The current fund value.

– The current transfer value – because there might be a penalty to move.

– Whether the pension is in a final salary or defined contribution scheme. Defined contribution pensions take contributions from both employer and employee and invest them to provide a pot of money at retirement. 

Unless you work in the public sector, they have now mostly replaced more generous gold-plated defined benefit – career average or final salary – pensions, which provide a guaranteed income after retirement until you die. 

Defined contribution pensions are stingier and savers bear the investment risk, rather than employers. 

– If there are any guarantees – for instance, a guaranteed annuity rate – and if you would lose them if you moved the fund.

– The pension projection at retirement age. You can use a pension calculator to see if you will have enough – these are widely available online.

2) You should add the forecast figures to what you anticipate getting in state pension, which is currently £221.20 a week or around £11,500 a year if you qualify for the full new rate. Get a state pension forecast here.

3) If you are tempted to merge your old pensions, read our guide first to ensure you won’t be penalised.

4) If you have lost track of old pots, the Government’s free pension tracing service is here. Our retirement columnist, Steve Webb, has a guide to finding lost pensions here.

Take care if you do an online search for the Pension Tracing Service as many companies using similar names will pop up in the results.

These will also offer to look for your pension, but try to charge or flog you other services, and could be fraudulent.