Are we sleep walking into pensions poverty?

PENSIONS have never been at the forefront of most people’s minds.

The general view is of a grey, jargon-ridden sector, full of trip hazards, unloved, almost impossible to get excited about.

Not any more it isn’t!

This month markets have been in turmoil, the pound has tumbled, gilts have crashed, pension funds have been scrambling for cash, and the Bank of England has had to intervene.

Yet this may be just the tip of the iceberg given Interactive Investor’s annual retirement survey, a hugely respected snapshot in time, which has questioned the nation’s whole attitude to pensions and retirement, exposing unrealistic assumptions and highlighting a series of vulnerabilities.

Key findings include:

■ The cost-of-living crisis has forced more than half of us to curtail or scrap saving.

■ Ten years after the introduction of auto-enrolment, one in four say they know nothing about pensions.

■ Six out of ten (61 per cent) had no idea what their income would be in retirement.

■ Women struggle most: half of those over 65 rely entirely on their state pension income, and are more likely to reduce working hours due to ill health or caring responsibilities.

■ The Bank of Mum and Dad is still propping up the first-time buyers’ mortgage market.

■ People continue to overestimate their retirement income by around 30 per cent. The research found the average income of over-65s is £16,540, however today’s workforce expect they will receive £21,730 come the day they pack in.

Other interesting asides indicate:

■ There is a later-life talent drain – only one in three 56-to-65-year-olds say they work full time.

■ Older people generally don’t want to downsize – only one in ten are in favour. Yet a sizeable proportion of younger generations – around one in three – wish they would, so family homes can be freed up.

■ Equity release remains deeply unpopular. Only six per cent of over-65s have used it, three per cent to fund retirement and three per cent to cash in on a property’s increased value. The majority (54 per cent) would actively avoid it.

However, despite a big hit to incentives in recent years, buy-to-let is holding up, with seven per cent of 22-to-40-year-olds owning such a property and three per cent of over-65s.

Interactive Investor chief executive Richard Wilson said: “When it comes to retirement dreams, many have gone from being locked in to

priced out. The cost-of-living crisis means retirement plans are being put on hold and savings cut back or dropped altogether.

“In one sense there is a feeling that people are all in this together – even higher earners are cutting back on savings. But in another we are increasingly a nation divided.

“We also see retirement outcomes being routinely compromised by just ‘not knowing’. Nearly one in four (24 per cent) of the general population say they know nothing about pensions.

“But it’s the culture around pensions that needs to change, so they become something that people can actively participate in, rather than passively accept.”

Some responses – here are four typical examples – were hugely worrying:

“I look at my annual pension statement and, to be honest, get totally confused by it all. It should be better explained in layman’s terms so normal people can understand it.”

“It’s so difficult to know who to trust and what the right thing to do is.”

“There is insufficient unbiased information available to prospective retirees. Too many products are driven by sales incentives.”

“There is a totally inadequate explanation of risk and the need to take some to boost returns.”

Having a financial adviser guide you through the maze is even more important in times of economic stress.

■ Trevor Law is managing director of Eastcote Wealth Management, chartered financial planners, based in Solihull.

Email: tlaw@eastcotewealth.co.uk The views expressed in this article should not be construed as financial