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What is the future for pensions?

February183

A stark and depressing picture of pension provision in the UK was painted by a report in the Express newspaper on the 14th of January 2018.

The essential theme of the story was that Britain has become a divided country when it comes to pensions – with the fortunate ones in receipt of generous occupational and personal pension plans, sharply distinguished from those struggling to get by on the State Pension alone.

In the way of many sections of the press, of course, a good degree of hyperbole is involved in the Express’ opinion piece. Not least is the fact that automatic enrolment continues to see more and more people in work also benefiting from membership of an occupational pension scheme. Furthermore, ongoing campaigns by the government are designed to encourage people to save more for their pensions and retirement.

How many rely on a State Pension alone?

Despite the newspaper’s assertion that “millions” are relying on the State Pension alone, the figures which are also quoted by sponsors of the survey, Age UK, tell a more complicated story.

It is true that the current State Pension amounts to around just £7,000 a year, but this is only rarely the only source of a pensioner’s income. Even amongst the poorest of pensioners, says Age UK, the State Pension accounts for some 78% of their income – an additional 22% of income comes from other sources.

Pensioners in middle-income brackets receive about a half of their income (53%) from the State Pension, and this increases to 61% once welfare benefits are also taken into account.

In other words, of the “millions” to whom the press reports refer to getting by on the State Pension alone in fact also have pension incomes from other sources. In other words, even the poorest and middle-income pensioners receive a total annual retirement income in excess of the State Pension’s £7,000.

What is the average retirement income?

On the other side of the divide to which the press reports refer are those in receipt of what are described as generous company and personal pension plans.

Yet research recently conducted by insurers Prudential, which was published on the 12th of January 2018, reveals that the average retirement income of all those leaving work this year is expected to be a record £19,900. Even in the light of that figure, the Prudential found that 46% of its respondents believed they had made insufficient provision for their retirement and doubted whether the sum would suffice.

Closing the pensions divide

In place of the sensational great divide between pension haves and have-nots, therefore, it is possible to argue that of course there are differences in the retirement incomes of different sections of the population.

Those differences are likely to have been created by a relative success or failure in making provision for retirement by saving, in one way or another, through participation in a pension scheme.

What the available research underlines is the importance of retirement planning as part of your ongoing financial planning, which is likely to become ever more important as you approach your retirement date.

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