Portal Financial warns that three factors are creating pension apathy:
• Misunderstanding, that auto-enrolment can lead people to perceive they are making appropriate planning for retirement
• Confusion, with people viewing the state retirement age as the earliest that they can retire and access private or workplace pensions
• Misperception, assuming that their parents’ or grandparents’ standard of living is broadly representative of what theirs will be
Currently, the average worker pays just 4.7% of their pay into a pension*. A recently published report** warns that today’s workers will be forced to work into at least their late seventies if they want to enjoy the same level of pension as their parents’ generation. It looks at how long people will have to work to achieve a good quality of life in retirement if they only contribute at the minimum 8% levels required by the government under the ‘automatic enrolment’ scheme. This is based on someone starting to save at age 22 and continuing to contribute each year until they retire.
Jamie Smith-Thompson, managing director of Portal Financial, says: “Apathy, misunderstanding, confusion and misperception are a toxic mix that could lead to retirement poverty for many of today’s workers. A person who has been retired for many years may have received a much more generous annuity rate than can be achieved today, while there is a good chance many parents of today’s 20-somethings have final salary pensions. Young workers need to understand how the situation they face is different now.
“Headlines about people working to their late 70s are damaging as they could deter people from saving into a pension at all, yet if people increased their savings they could retire much earlier. Pensions are currently the most generous and tax efficient savings vehicle; a focus on making people aware of how much better off they could be with one and increasing contributions with pay rises could significantly reduce a person’s career length.”
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