One in five Britons have zero set aside for old age

PUBLISHED : Tuesday, 26 June, 2012, 12:00am
UPDATED : Tuesday, 26 June, 2012, 12:00am


Say the word pension to people at a dinner party in Britain and most guests will lose their appetite. That is because an increasing and substantial proportion of the working population are trying to ignore the fact that they will get old.

According to a respected financial report, a staggering one in five working individuals are setting aside precisely nothing to pay for their old age.

Equally worrying is that as the recession bites and families find it ever more difficult to pay off necessities, such as the mortgage, even those who are contributing to their pension are cutting back on payments.

Three-quarters of all adults are paring back their deposits into pension savings, so the shortfall from what they need for a workable annual amount in their old age is growing.

At today's estimates, the average pensioner will need GBP24,500 a year (HK$302,575) to have a living income, but at current rates, they will be scrimping and having to get by on just GBP13,000 a year.

Pension savings have hit an eight-year low and the fall appears to be accelerating with overall investment in pensions dropping by 5 per cent in just the past year.

The authors of the report, the British investment provider Scottish Widows, owned by Lloyds banking group, say this has worrying implications.

Head of pensions market development Ian Naismith concedes: 'These are challenging financial times. However, taking a short-term view of your finances will not help close the gap between the UK's current pension provision and the desired level of retirement income.'

Saving for the future never fills investors with glee and not many of people like the notion of growing old, but there is an additional major problem with pensions, in that consumers have lost confidence in them as a brand.

They have been badly burned by incompetent pension managers, sky-high charges, poor returns and for some particularly unfortunate investors, losing all pension contributions when funds have collapsed.

The most notable was when Equitable Life imploded in 2000, but what rankled most was that the company continued to tout for business and take money, even while managers knew it was technically insolvent.

Leading pension expert for Hargreaves Lansdown Asset Management Danny Cox concedes that the pension story, for many in Britain, has not had a happy ending.

'Pension savers have had a pretty rough time in recent years and it's going to be a long burn to turn people onto pensions again, in large part because of past problems, poor public relations and because generations now want immediacy: the plasma TV, the latest iPhone and a holiday to Majorca this year are far more attractive than an extra GBP100 a month into something you won't see for 40 years,' he says.

The question is whether the new-look pensions market is enough to tempt back the people who simply don't think pensions are worth the paper they are printed on. One thing the government has done is slash the fees for managing pensions. Government-stakeholder pensions now have a limit on annual charges of up to 1.5 per cent and Scottish Widows is keen to stress that they charge just 1 per cent. But even so, with one-quarter of all British teenagers now expected to live until they are 100, all pension companies acknowledge that something dramatic has to be done to force people to take responsibility for their own, long, financial future.

From the autumn British workers, who will have to work until they are 68 under new retirement age rules, will have to take out a pension via auto enrolment, but even if saving for the future is being made mandatory, there is no certainty that hearts, minds and wallets will be won over.

Naismith says : 'Those not saving at all for retirement are likely to be earning under GBP20,000 and less likely to be working full time. Auto enrolment presents a once in a lifetime opportunity to reach this group, but for this to be successful we need a compelling government communications campaign to make clear in simple and understandable terms the need to save for retirement.'

Headlines about pensions not paying out what they promised and the fact that even public sector pensions are under threat is not helping convince the doubtful.

For the 6 million or so public-sector workers in Britain the lack of faith in pensions is a particularly bitter pill to swallow. Thought to be one of the perks of working for the state, the gold-plated pensions that doctors, dentists and teachers expected are under threat, with the deficits of public final-end pensions combined with the commitments already made, expected to total up to a shortfall of GBP5 trillion.