45-54 year olds spent around two hours more planning for their last holiday or redecorating a room than thinking about their retirement last year
Six in ten (62%) don’t know how much they have put aside for retirement, while those that do know have around £240,000 less saved than they think they’ll need to live on
LV= is calling on the regulators to force pension providers to give customers standardised annual pension summaries showing what their pension could provide and signpost them to advice
The 2015 pension freedoms gave consumers greater flexibility over their retirement options, but the reforms have also made retirement choices much more complex. This means people must start thinking about their retirement earlier, but half (50%) of respondents aged 45-54 didn’t think about retirement at all last year. Those who did spent on average three hours and 42 minutes planning their retirement, significantly less than the average time they spent researching their last holiday (five hours 42 minutes) or planning before redecorating a room in the house (five hours six minutes).
Given the lack of time people spend thinking about retirement, it’s unsurprising six in ten (62%) 45-54 year olds don’t know how much they have saved for retirement. If people spent more time to planning for retirement this could help them better identify whether they are saving enough. People expect to need around £1,360 a month to live comfortably in retirement and in order to guarantee this someone retiring at 55 would need to have around £311,000 saved, and this is also assuming they qualify for the full state pension. However, the average pension savings of those surveyed aged 45-54 years old is £71,342.
To tackle this lack of awareness and encourage people to plan for retirement, LV= is calling on the Financial Conduct Authority and The Pensions Regulator to require all providers to include a standardised summary sheet with annual statements. Included in the summary would be key data on the pension pot, information on what someone might use it for, and illustrative examples of how much monthly income it might provide in future if taken as a guaranteed income or as a flexible income. The summary could also show how much the majority of people need to be able to live comfortably in retirement and direct people to an adviser.
LV= believes this would make it far easier for people to assess their retirement savings, and encourage the take up of advice to make the most of their money. Given the large shortfall in pension savings, consumers need to recognise that advice is the best way to ensure that their income will last throughout retirement. Advisers taking a safety-first approach to retirement planning can firstly guarantee the security of essential income before enabling clients to enjoy the flexibility of the pension freedoms.
John Perks, Managing Director of Retirement Solutions at LV=, said: “Ten years away from retiring is really the last opportunity people have to make any significant changes to their savings that could mean a more comfortable retirement. So it’s extremely worrying people spend longer thinking about a holiday, which might last one or two weeks, than retirement, which might last thirty or more years.
“Taking financial advice is the best way to ensure consumers make the right financial decisions and secure a better retirement income. Sending standardised summaries and examples of future monthly income to consumers annually could encourage people to spend more time planning their retirement. Together with Financial Advice Market Review reforms, this should mean people increasingly turn to financial advice to help them make these plans.”
LV=’s Retirement Pathfinder tool provides advisers with a snapshot of their client’s retirement future along with clear scenario comparisons of each solution, including advantages and disadvantages, enabling advisers to create tailored solutions to best suit their clients.
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