Some Bank of England officials know that they can retire on their 60th birthday with a pension income touching £100k. Not the case for most of us. Do you know when you will retire? Do you expect to work into retirement? Do you know what income you will have in retirement? Most working age people – even active private investors – don’t know the answers to these questions and uncertainty is mounting. Women are even more uncertain than men.
The following are some highlights from our latest nationally representative survey of working adults and a sub-set of active private investors.
- More than one third of working age British adults don’t have a clear idea of when they will retire.
- 30% plan to work either full time or part time beyond their state retirement age.
- Uncertainty over when working adults will retire is up year-on-year and more people plan to work into retirement.
- Uncertainty is even higher among women. While 29% of British men have no clear idea of when they will retire, that increases to 39% among British women.
We have an opportunity to provide some peace of mind and to make people feel prepared for retirement. The good news is that active investors are much more certain about their retirement. The challenge is to engage a larger segment of the population in investing.
Workplace pensions have always been identified as the first place to engage people with investing. And most working adults tell us that the most important source of income in retirement will be from a workplace pension – ahead of the state pension. With the ratcheting-up of AE contribution rates around the corner, we hope opt-out levels will remain low in workplace pension plans. People know they need a workplace pension to fund their retirement – this should encourage them to keep socking their money away.
LISA and the pension
Some commentators believe the Lifetime ISA (LISA) is a threat to pensions. We asked investors and the adult population generally if they’d use the LISA and if so, to what end. Nearly a third of British adults plan to use the LISA and most plan to use it for retirement. A worrying 22% plan to use the LISA in place of a pension.
Life and pension companies offering annuities were hard hit by the pension freedoms. The LISA is another potential threat but the research indicates it won’t be a massively disruptive force. In fact, active investors are less likely to say they will use the LISA instead of a pension to save for retirement. There might be some opportunity to introduce the LISA into corporate plans in the form of a Corporate ISA (but perhaps with higher take-up).
Hargreaves Lansdown will offer it from the start on the Corporate Vantage workplace platform. They are also launching a cash savings platform with offers from a number of banks and building societies. This will give employees access to the full suite of cash, stocks and shares and lifetime ISAs alongside their workplace pension. It may prove to be very attractive but will require employees to increase their understanding of ISA as well as the pension that they already find confusing.
We’ll be asking employers about their demand for a corporate LISA in a survey for our workplace savings research later this month.
Of course the worriers about LISAs will turn out to be right all along if it indeed turns out to be a stalking horse for flat rate tax relief pensions.
Do please get in touch with comments and to request a copy of Facing an Uncertain Retirement.