Only 6% of people are on track to achieve the retirement they want, despite the focus on pensions following major reforms announced at this year’s Budget, according to Aegon’s second UK Readiness Report.
The number of people on track has fallen from 7% in April when Aegon published its first report and one of the main factors driving the fall is a rise in people’s expectations with people wanting an average of £41,000 a year in retirement compared against £35,000 in April.
While the amount people want has risen, people estimate they have a guaranteed annual income of £18,000 for their retirement, indicating most can expect to fall £23,000 short of their goal. This shortfall has contributed to the UK’s readiness score falling from 52 in April to 47 today with the number of people scoring less than 30 increasing from 4% to 13%.
32% of people say they are more positive about pensions following the Budget, while just 4% believe changes are for the worse, with 64% unmoved in their view. To create the readiness score Aegon looked at how realistic people’s financial expectations are, their financial awareness and behaviours.
David Macmillan, managing director of Aegon, said: “The Chancellor radically changed the way people will be able to access their pension with his Budget announcements. These changes will give people far more flexibility over how they access their savings and have generally been seen as a boost for pensions. It’s possible however, that the positive news has increased people’s expectations about what they can expect to receive in retirement, when in actual fact the main factor which will determine their income in retirement will be how much they save each month.”
In addition to expectations, people’s financial awareness and knowledge is still relatively low as only 30% knew the value of current maximum state pension, £113.10 with 31% over estimating the figure which will make up a major part of many people’s retirement income. Similarly, very few people demonstrate the behaviours that will help them to maximise their savings, with 53% of people admitting they have never checked the performance of their retirement savings, while just 17% said they had reviewed their retirement plans in the last six months.
However, there are signs that awareness and behaviours will improve as implications of the new pensions and saving changes filter through. For example, the amount people have saved in ISAs has leapt from an average of £8,200 in April to £12,700 indicating people are trying to make the most of the new increased £15,000 ISA limit.
Macmillan added: “There’s a gulf between the amount of money people want in retirement and what they are likely to get. People need to be realistic with their goals, but the pensions industry must support them to achieve this by providing simple products they can access online and via a mobile device. Our research found that just 11% of people currently manage their pension online and we believe it will be increasingly important to offer savers a pension they can access in their own time. We launched Retiready our online pension service earlier this year and thousands of customers have now created their own personalised readiness score and used our coaching tools that allow them to close the gap between their savings and the income they want in retirement.”