45% of clients are engaging with their retirement savings but are struggling to save more, a Royal London survey of financial advisers has established.
The firm’s Pensions Through The Ages: Feeling The Squeeze research included asking over 150 financial advisers about the challenges facing their clients when considering saving for their retirement.
While 75% of advisers with clients aged 35-44 said that they were at least slightly engaged with retirement saving, IFAs also flagged that many clients had more pressing financial priorities then saving for their retirement, with 57% believing they would use any extra money to reduce their debts or ease financial pressure.
Only 17% of advisers thought that clients who felt ‘squeezed’ (that is where keeping up with bills and repayments is a constant struggle), would use the extra cash to begin or boost their pension savings.
The findings reflect the Royal London UK-wide survey of nearly 2,500 people aged 35-44 which showed that 34% said their finances felt ‘squeezed’ and so were struggling to meet day to day expenses, despite 87% aware that they need to save more.
Fiona Tait, pensions spokesperson at Royal London, said: “While our findings show that many people are ‘feeling the squeeze’, it is good news that advisers think their clients are engaged with retirement savings Even if people can’t afford to save more now, it is possible to create a definite plan of action to save more in the future when their income increases or outgoings are reduced.
“For many the level of saving into pensions is well below the level it should be for them to achieve a realistic income for the lifestyle they imagine when they choose to retire. 35-44 year olds are particularly vulnerable, as they are less likely to have a DB pension to fall back on. Financial advisers can help their clients by identifying future opportunities to save more and, importantly, getting them to commit to taking action when these opportunities occur.”
The Royal London Feeling the Squeeze research has identified a number of “Savings MOTs” – Savings Moments of Truth – where those surveyed said that money they no longer needed for other expenses, such as paying off car finance, could be redirected into pension savings. These ‘real’ examples of potential savings opportunities show that it is possible to boost the income someone is able to secure in their retirement, if they accept that they need to take action to address their long term savings.
The wider research showed that those who had spoken to an IFA valued their advice. 87% of 35-44 year olds who had spoken to an IFA saying that they would be likely to do so again in the future. Of those who had used an adviser, 45% reviewed their finances with an adviser at least once a year. However, short term saving was a more immediate priority, as 56% would save any extra money into an ISA compared to just 30% who’d save that money into a pension.
Royal London said this is where the research could help support advisers with those clients struggling to save for the long term by identifying those Savings Moments of Truth and encouraging them to redirect some of their income to help boost their pension savings. For example, based on the information from the respondents redirecting just half 0f the current outgoings they said they could save in the future could provide a potential £80,000 increase to their pension savings.
The Savings MOTs highlighted by the 35-44 year olds surveyed for the research include, for example:
- Finances: On average, those with finance commitments are paying an average of £200-£299 a month and will see this commitment end in the next two to three years. If they contributed half of this amount, £100, into a pension until they decided to retire, they could add nearly £40,000 to their pension pot.
- Personal loans and credit card debt: Those with long term personal borrowings, either as a loan or on credit cards expect to pay these off within the next three to four years on average. Redirecting half their monthly payment of £100-£199 could create an additional £18,600 in pension savings.
- Mortgages: On average, those surveyed expect their mortgage to be paid off within the next 15 to 20 years. This could free up around five years of payments, which on average are £500-£599 per month, securing a potential boost to their pension pot of over £20,000.
Tait added: “45% of 35-44 year olds surveyed, said that after first speaking to an IFA about their pension options they are now reviewing their finances with an adviser at least once a year. So all is not lost.
“These reviews are a great opportunity to reassess a client’s current pension savings and set in place those Savings MOTs to potentially boost their future income in retirement over the long term.”
