Millions still struggle to understand their pension

Millions still struggle to understand their pension.  Yet saving money for retirement is important because you’ll need a nest egg when you’re no longer working…  

Pension Savings

For most people, pensions represent their biggest single source of private wealth.  A record number are saving more money in occupational defined contribution pension schemes.  However, despite these record highs, pensions remain a mystery to most.  Worryingly, new research reveals a widespread lack of understanding.  The Pensions Regulator reports record membership of occupational defined contribution pensions, at 23.4 million [1]. This is up from 21.7 million last year.  Furthermore, data from the Office for National Statistics [2] reported that individuals in the UK hold a record £15.2 trillion of private wealth.  Accordingly,  pensions represent the largest proportion of this figure at £6.4 trillion. This exceeds £5.5 trillion in property and £3.3 trillion in other assets, including around £2 trillion in cash. 

Auto-Enrolment

Overall, auto-enrolment has seen the biggest increase in pension savings over the last decade. When it was introduced in 2012, only 4 in 10 (39%) private sector workers were actively saving for their retirement.  This figure is now more than 70%.   However, the proportion of adults who agree they ‘understand enough about pensions’ [3] has only increased by 1% in the last ten years (from 43% to 44%).

Understanding Wealth

Further research [4] has found a conflicting relationship between value and understanding of various elements of ‘wealth’.   With 7 out of 10 (69%) confidently estimating the current value of their cash savings and 2 in 5 of them (41%) are very confident.  This ‘confident’ figure rises to 75% of those aged 55+.   More than 53% could also estimate the value of their property quite accurately.  This figure rises to 61% of those who are retired.   However, when it came to pensions, only 39% could confidently estimate the value of their pension pot.  Furthermore, 1 in 10 was ‘very unconfident’ about estimating the current value of their pension savings.

Over the next century, estimates show the pensioner population in the UK will increase from 12 million to 20 million.  Basically, this means that more than 1 in 4 people will be pensioners.  Automatic enrolment has brought pension savings to millions.  But still the risk remains of sleepwalking into retirement as millions still struggle to understand their pension. There is a real need to understand how much we have in our pension pots.  Certainly, what those savings might look like as retirement income and how long that money needs to last.

Source data:
[1] DC trust: scheme return data 2021 to 2022
[2] Office for National Statistics
[3] Survey by Unbiased and Opinium of 2,000 non-retired UK adults in June–July 2020
[4] Aviva Research was conducted between 5–7 January 2022 by Censuswide. Surveyed 2,000 UK respondents (national representative sample).

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