Tomorrow (6 April) will mark two years since the introduction of the pension freedoms. New research from Aegon has found that 14% of working age people are saving more into their pension as a direct result.
This equates to some 5.5 million people in the UK contributing more to a private or workplace pension because of the reforms.
This increased level of saving is reflected in the growth of UK retirement pots. On average, people have £50,000 saved in pensions, up from £29,000 in April 2015. In addition to these positive steps, the pension freedoms have also directly prompted more people to consider their future plans. 15% of people have realised they need to plan more for retirement, up from 10% in April 2016 and the proportion of people engaging with an adviser on their plans for retirement has almost doubled in the last 12 months.
Aegon says this growing engagement is reflected in people’s financial planning. In April 2015, 50% of the UK population had taken no steps to review their retirement plans, but this has fallen by 15%, to 36%. In fact, 22% of people have reviewed their plans in the past six months alone.
As people become more active in reviewing the status of their savings, it appears that their overall aspirations for retirement income are also becoming more realistic, Aegon says. The average annual income people would like in retirement is £32,000, a fall from the £38,000 in April 2016, and lower again than the £41,000 people were hoping to retire on at the time of the pension freedoms. While these incomes are still some way above the average UK income of £28,200, and a good deal more than the average pensioner income, Aegon says it is encouraging that aspirations are moving in the right direction.
Despite all this, 6% of people have never engaged with their pension savings. 22% claim they simply don’t understand how to review their plans for retirement, 15% of people say the lack of online services or information prevents them from checking up on their pension savings and for 12%, the main barrier is the fear of seeing how little they have saved.
Steven Cameron, pensions director at Aegon said: “The 2015 pension reforms put many more retirees in the driver’s seat for the first time. Two years on and all the signs point to the pension freedoms having paved the way for a smoother road to retirement.
“People have moved up a gear, saving more and becoming more engaged with their pensions. Crucially, the proportion of people speaking to an adviser about their retirement saving and income options is almost double what it was in April 2016. Giving retirees the freedom to do as they please with their money is having an impact not only on those who are taking advantage of that freedom today, but the trickle effect is positive down the generations.
“It seems that bringing freedoms to pensions and saving for retirement has boosted their appeal across working life, with 5.5 million UK savers contributing more to their pots.
“However, there’s still a long way to go. People will need to accelerate their saving to reach their retirement destination and make the UK a nation of long term savers. Over a third of the adult population have never taken any action that affects their plans for retirement and these people must be encouraged to engage and save more, or face a very uncertain future.
“Auto-enrolment does mean many more people have a workplace pension without taking personal action but default contribution levels will only go so far. And there’s a growing issue as more and more people are self-employed and won’t have the benefit of a workplace pension at all.
“We are now firmly in an era of personal responsibility for long term saving. The freedoms bring an increasing number of income choices, while the decline of generous DB pension schemes means that retirement income will be more closely linked to contributions made through life. The challenge is to engage people early enough to give them choice about how they finance their retirement.”
