Pensions and Retirement Planning News – Forbes Advisor UK

August 31: 10 times more retirees worried about running out of money

The UK has seen a marked increase in the number of people who have stayed in work over the past six years despite reaching retirement age, according to insurance company Aviva.

Aviva said that at a time of mounting cost of living pressures, fewer people of all ages who are eligible to retire have done so.

The insurer said the biggest change has been among people aged 65 to 74. While 92% of this age bracket were already retired in 2016, this year that figure had fallen to 79%.

Aviva said the reason was an increase in the statutory retirement age, which rose from 65 to 66 between December 2018 and October 2020 and is expected to increase further in the future, reaching 67 in 2028.

In 2016, 96% of people aged 65 to 74 said that state pensions represented at least part of their income, compared to 71% today. According to Aviva, this is equivalent to a 25% decrease in the proportion of people in this age group receiving part of their retirement income from the state pension.

The state pension could be worth more than £10,000 for the first time in its history next year, thanks to a government pledge to restore the so-called ‘triple lockdown’.

The arrangement will increase next April’s state pension payments by either the rate of September inflation (as measured by the Consumer Price Index, the average income growth between May and July this year , or 2.5%, whichever is greater).

The inflation measure for the year to July was 10.1% and is expected to rise this fall.

Aviva added that, for those over 65, money worries related to retirement figured more prominently compared to six years ago.

In 2016, 1% of people in this age group said they worried they would run out of money in retirement, while another 1% acknowledged they wouldn’t have enough money to achieve their future ambitions, such as travelling.

In 2022, the proportion has risen to 11% in both cases.

Aviva’s Matt McGill said: “While for some the income gap can be bridged by wages, our survey shows there is still a significant shortfall for around a fifth of over-65s. , leading them to worry more about having enough money in retirement.”

August 24: Young workers who cut their pensions have the most to lose

According to Broadstone, people in their twenties who have cut company pension contributions due to the cost of living crisis could find themselves with £60,000 out of pocket.

The consultancy’s analysis shows that young workers who cut the amount they pay into their work scheme could erode a quarter of their pension, assuming they don’t reverse it.

A study by pension provider Standard Life also found that with inflation at its highest level in 40 years and facing rising energy bills, around 6% of workers in the UK plan to cut their contributions by retreat to make ends meet.

Broadstone based its calculation on employers maintaining a level of pension contribution equivalent to 3% of earnings, while employees reduced payments from 5% to 3% – an overall contribution of 6% of earnings, compared to 8% previously.

The company also assumed that employees earned the national average full-time wage of £38,131, with that figure rising with average inflation of 2.5% over their working career up to the end of the year. retirement age. It is currently 68 for people born after April 6, 1978.

The figures show that the youngest savers had the most to lose, given the extra years when they would save a smaller proportion of their salary in their pension.

In terms of the amount of pension accrued over their career, Broadstone said a 25-year-old could miss up to £60,000, while the figure would be £39,500 for a 35-year-old. A 55-year-old employee would end up with around £10,000 out of pocket.

The consultancy said employers should keep records of all employees who decide to cut pension contributions with a view to encouraging them to reinstate payments as soon as possible. He also called on companies not to reduce employer contributions.

Rachel Meadows, head of pensions and savings at Broadstone, said: “As household budgets become increasingly tight towards the end of this year, it is unrealistic to expect all savers maintain their current contribution levels.

“Freeing up additional income can be a smart and necessary financial decision, although we encourage people to seek help to see if there are other ways to meet their day-to-day expenses given the tax savings and employer contributions from which savers benefit.

August 23: Young adults fear missing their state pension

According to insurer Royal London, around one in three young adults in their twenties (30%) think the UK state pension will no longer exist when they retire. Andrew Michael writes.

The company’s research also found that around half (50%) of young adults expect the state pension to be less generous in the future compared to its current level of around £9,600. £ per year.

More than half of young adults (56%) expect to have to wait until they are over 70 before they can claim the UK’s main pension benefit, according to Royal London. For anyone born after April 6, 1978, the current legal retirement age is 68.

The amount of state pension an individual receives is dictated by their National Insurance (NI) record. But three-quarters of those polled by Royal London (74%) were unaware that receiving the full state pension required 35 years of NI contributions or credits.

A recent study by pension provider Standard Life found that with inflation at its highest level in 40 years and facing rising energy bills, around 6% of workers in the UK plan to cut their contributions by retreat to make ends meet.

Clare Moffat, pensions expert at Royal London, said: “For workers in their 20s, retirement is probably one of the last things on their minds along with more pressing financial priorities like the cost of living crisis and the paying bills, saving for a house or even a car, occupying their thoughts.

“But worries about when and how much the public pension could lead to the expectation that they will need to self-fund more of their retirement. Future financial security will likely mean working longer than generations. previous ones and also save more.

August 23: September inflation rate to determine state pension

The state pension could be worth more than £10,000 for the first time in its history next year, thanks to a government pledge to restore the so-called ‘triple lockdown’.

The arrangement will increase next April’s state pension payments either by that September’s inflation figure – as measured by the Consumer Price Index (CPI) – average income growth between May and July of this year, or 2.5%, whichever is higher.

The CPI inflation figure currently stands at 10.1% and, if anything, is expected to rise for the remainder of this year. If this remains the case, around 10million pensioners will receive a state pension increase of more than 10% next year, taking the state pension past £10,000 to its highest level never reached.

August 15: employees cut pension contributions

Nearly one in 10 workers are considering cutting the amount they pay into their company pension to tackle the cost of living crisis, Andrew Michael writes.

According to a study by consultant Barnett Waddingham, 7% of employees, or the equivalent of 1.05 million people, said they were looking to reduce the amount of their contributions to their occupational pension scheme.

A company pension is a means of retirement savings set up by an employer. All employers are required to offer one, with employees contributing at least 5% of earnings and employers contributing at least 3%.

Employees are automatically enrolled in the scheme at their place of employment, although it is possible to opt out.

The company added that the figure has risen to nearly one in five workers (18%) in the 18-34 age bracket. According to Barnett Waddingham, this is the age group for which it is most vital to lay the foundations leading to stability. financial future.

The company found that around a fifth of people (19%) had already sought to cope with the strain on their household finances by cutting out everyday luxuries such as subscriptions to streaming services.

But he reported that the cost of living crisis was also beginning to impact people’s ability to make financial plans.

Barnett Waddingham said just over a quarter of respondents (26%) admitted to dipping into their savings to cope with rising prices, as well as having to sacrifice their long-term financial plans.

The company warned that most people are not saving enough for retirement and that “these developments could have a profound impact on [their] financial resilience”.

Mark Futcher of Barnett Waddingham said: “The cost of living crisis has forced many to take a hard look at our finances. But while there’s obvious value in doing some financial spring cleaning, reducing financial planning commitments could have a dramatic impact on long-term financial well-being.

He added, “At a time of significant financial hardship, it’s important that employers do their part to help keep employees’ heads above water. At its core, this means providing more solid financial guidance to employees and encouraging them to think twice about making instinctive decisions with their finances. »

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