The survey shows this mid-career group of employees (35-49 years of age) are the least likely to think they will have enough savings when they retire. Additionally, debt remains a problem for many, and – maybe surprisingly - it is people who are in their mid-careers who seem to find it hardest to save, with around a third of people in this group thinking they could not come up with £1,000 in an emergency.
While the introduction of more flexibility in the UK pensions market by the Government in 2015 means that employees now have more retirement options, other factors such as increases in property prices and debt levels are creating financial challenges.
Sophia Singleton, partner and head of DC Consulting at Aon, said: "This year’s survey highlights that people mid-career are the least likely to rate their overall financial situation as good and are the most likely to have debts. They are also the least likely to be engaged with their company pension and are the ones who feel more squeezed and worried about their savings. They are concerned that they will have to work longer while still not knowing how they will be placed financially at retirement. We need to engage with the ‘squeezed middle’ now - before it becomes too late.”
Disconnect between perception and reality
While 72% of all respondents said they feel confident about making financial decisions that affect their future, 59% do not feel they are saving enough for their long-term needs. Additionally, around half of the respondents say they cannot afford to save more, but 28% say nothing is preventing them from saving more.
Sophia Singleton added: “Employers and trustees have the potential to reach and support huge numbers of individuals, with economies of scale. They can offer services and tools aiming to improve current and future financial wellbeing and reduce workforce stress, which can have real business benefits.”
Retirement income and the importance of employer guidance
Most employees expect a main source of retirement income to come from their current or former employer scheme (59%). However, more than half of respondents did not know how much money they will need to save before they can fully retire – for those who are approaching retirement this figure remains high at 41%. Over half (57%) worry about running out of money in retirement and almost 60% worry they will not have the money to retire when they want to.
Respondents also worry about their future quality of life. One in three members of Defined Contribution pension (DC) plans expect a decline in their living standards when they retire and 25% do not know what to expect in terms of retirement income.
As far as contribution levels are concerned, 60% of those surveyed rely on their employer to set the amount they will be saving into their DC pot, with only 20% of the respondents taking advantage of the maximum matching levels. 20% of employees do not even know how much their employers contribute to their DC pension scheme.
Steven Leigh, senior consultant at Aon said: "Aon's 2018 survey highlights the importance of the role of employers in designing pension savings for their workforce. Many employees rely on the set-up offered so the pension design needs appropriate contribution levels, considering long-term objectives for individuals and for the business. Trustees will be concerned at the number of DC members expecting a fall in living standards or that do not know what income to expect in retirement."
Financial wellbeing
On-site, face to face, financial education is highly prized, with individuals in the early part of their careers the group that would most like their employer to provide some sort of support on managing day-to-day financial needs. When it comes to specific topics, support with saving for retirement is the most popular request from employees across all age ranges.
Martin Parish, area director at Aon, said: “Individuals often lack understanding when making financial decisions and managing their savings – and as such, they may not be taking action to meet any shortfalls or to cover risks. Employers have a key role to play in providing guidance and education on financial matters and wellbeing, in order to help employees avoid disappointments during their careers.
“Employees are expecting more support from their employers – 46% of the respondents said they would appreciate more help from their employers. Individuals will have different priorities at different stages of their careers, so it is important that employers and trustees work together to consider a plan to support their employees on an ongoing basis.”
Retirement age new realism
The transition between work and retirement is becoming less distinct and people are planning to leave employment later in life - if at all. Less than a third of respondents say that they expect to fully retire at retirement age, while less than half expect to retire by age 67; 25% percent expect to still be working at the age of 70 and 14% expect to go on working forever.
Sophia Singleton concluded: “Expectations about retirement differ from individual to individual, with many likely to be working while drawing from their pension in the future. Therefore, for DC pension members, there is a real need to ensure they have the flexibility in their workplace pension arrangement to align with their retirement plans and that the right support is available to help them make appropriate choices.”
Other findings from the survey include:
• The desire for annuities continues to fall, down to 16% from 20% two years ago
• More DC pension members expect to choose flexible drawdown to take regular income from their pension scheme, 43% of the respondents compared to 38% in 2016
• 55% of the respondents think their employer scheme is generous or good
• 60% of respondents nearing retirement expect to rely on the state pension as one of their main sources of income at retirement, compared to 42% of those in their early or mid-career
• 28% of the respondents think there is nothing stopping them from saving more
The ‘Aon DC and Financial Wellbeing Member Survey 2018’ is based on a survey of over 1,000 full-time UK employees with access to DC plans through their employer, as well as real life experiences from participants in Aon’s DC pension and financial wellbeing focus groups. The research was conducted in summer 2018 in collaboration with Ipsos.
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