How your retirement plans measure up, according Opinium poll for Hargreaves Lansdown

Nathan Long, senior analyst at Hargreaves Lansdown, comments on the results of an Opinium poll (on behalf of Hargreaves Lansdown) of 2,000 people, which looks at retirement plans and how they measure up.

Key findings:

One in ten people aged 18-34 aren’t sure if they have a pension or not.
At this age, they expect to retire at 63 and they pay £298 into their pension each month.
The squeezed middle (those aged 35 to 54) plans to retire at 64. The average person pays £311 into their pension each month.
Those aged 55 and over plan to retire at 67 and a half. They put away £249 on average into their retirement savings.
However, 29% them still aren’t confident they’ll be able to afford to retire.

Nathan Long says:

“It can be difficult to know where you stand when it comes to your pension. It’s not something that comes up very often when you’re down the pub with friends or around the dinner table, so most people are in the dark as to whether they’re making sensible plans, paying enough in, and making the right decisions about their pension savings.

“There’s no one single right way to prepare for retirement. For one person, their plan may be to start winding down at 55 by going part-time, while someone else may be happy to work full-time until 65. But it can help to know how you compare to people of a similar age, and roughly where you should be at each stage.

“A 20 something who doesn’t really know how or when they’ll stop work is among friends. However, as you get older, you should start to understand how much money you’ll need to retire and what your retirement will look like. Would you like to have a phased retirement, or do you have aspirations to become an entrepreneur and start your own business in later life? Many people have decades to go until they reach this point, but those who have passed their 50^th birthday should start giving it some serious thought.

“You should ideally have a retirement savings vehicle, such as a pension or lifetime ISA, where you can put money away each month and benefit from a government bonus or tax relief. If there’s a pension scheme at your work and you’re not paying in, why not? And if you’re self-employed but aren’t saving for retirement, why not? A moderate annual income in retirement is £20,200, according to the Pensions and Lifetime Savings Association. Some of this will be provided by the state pension (£9,339 a year if you get the full state pension) but where’s the rest going to come from?

“In terms of how much you should save, a general rule is to save 12% of your income each year from age 18 to 68. This includes tax relief and any employer contribution. However, few of us start at 18, many will have periods where this goal isn’t achievable, and not everyone wants to work till 68. It’s worth using an online pension calculator to check how much you should aim for.”

55 years plus:

Age they expect to retire: 5
Proportion with a pension: 73%
Proportion who don’t know if they have a pension: 4%
Average monthly contribution (among those who pay in): £249
Have a clear idea what their pensions are worth: 46%
Know how their pension investments are performing: 40%
Are confident they’ll be able to afford to retire: 42%

Nathan Long comments on how it measures against the ideal:

“It’s really worrying that so many older savers still don’t know the basics about their pension pots.

“It is also alarming that 3 in 10 people in this age bracket are not confident they’ll have enough cash to retire. For all the generalisations about baby boomers enjoying the spoils of home ownership and final salary pensions, there is still a chunk of older people for whom retirement is a big worry. This may include renters, divorcees and the self-employed.

“They’re also paying relatively little into their pension. However, it’s worth bearing in mind that this group will include a number of people who have built up significant pensions, and are now working part time, so contributing far less. “

35-54-year-olds:

Age they expect to retire: 64
Proportion with a pension: 78%
Average monthly contribution (among those who pay in): £311
Have a clear idea what their pensions are worth: 36%
Know how their pension investments are performing: 33%
Are confident they’ll be able to afford to retire: 31%

Nathan Long comments on how it measures against the ideal:

“This group is often dubbed the ‘squeezed middle’, because they face so many pressures that their finances are often far from ideal. At this stage it’s essential to have started a pension, paid in what you can afford, and then connected with it, so you understand exactly what it will do for you. On average, we’re falling a long way short of this.

“This isn’t a huge surprise. This group faces peak financial pressure, due to the costs of childcare, paying for a mortgage and possibly looking after elderly parents.

“However, they are less likely to benefit from gold-plated final salary schemes like their older peers, and will have missed out on the full effects of auto-enrolment – unlike those in their 20s – so these people are often the least optimistic about their future.

“It means it’s vital for people in this group to get to grips with where they stand, and what they need to do to secure the retirement they need. “

18-34-year-olds:

Age they expect to retire: 63
Proportion with a pension: 66%
Proportion who don’t know if they have a pension: 10%
Average monthly contribution: £298
Have a clear idea what their pensions are worth: 33%
Know how their pension investments are performing: 35%
Are confident they’ll be able to afford to retire: 35%

Nathan Long comments on how it measures against the ideal:

“The age this group expects to retire is likely to be a rough estimate, because we wouldn’t expect people to have nailed down their retirement age at this stage. Your retirement age is entirely up to you and the plans you make, but in reality for a lot of people it’s likely to be later.

“The fact that a third don’t have a pension isn’t necessarily a worry. The number of students in this group will automatically bring this figure down. Others will have other savings priorities like paying off a student loan, or getting onto the housing ladder. However, while this is likely to limit how much they can pay into a pension, they shouldn’t be turning down free money available from their employer by being enrolled into their workplace pension. There are also likely to be part time workers and people under 22s who aren’t automatically enrolled into their pension. People in this position can talk to their employer and ask to join.

“The rule of thumb for contributions is to pay in 12% of salary throughout your career, but plenty of people can’t stretch to this early in on, so rather than aiming for ideal you should aim for the best you can.

“The positive news from these figures is that some younger people are actively engaged with how much they’re saving and where they’re investing. The fact they’re already tuning into their pensions bodes really well for their future. “

Steps to get your pension on a better footing

18-34-year-olds:

Find out where your money is invested. A default fund is a broad fit for many people, but it can be quite conservative, so taking a bit more risk with a more adventurous fund is a great opportunity to boost your returns when you’re young.
Pay in more if you can. If you’re able to contribute more to your pension, you could get extra tax relief and possibly more money from your employer too.

35-54 year olds:

It’s tidy-up time. You may have several pension pots by now so consider consolidating them to save the admin headache (it may lower the costs too).
You may be at peak earnings in your career now so try to boost your pension contributions – you’ll get more tax relief and possibly extra cash from your boss too.

55 years +:

Get to know your pension, like really know your pension. How much is in there? Do you need to turbo-charge your contributions to give it a final boost before you finish work? And how can you take money out when you retire?
Consider when and how you’ll retire. Where do you want to live? Would you like to reduce your hours and go part-time in the final years before retiring? If you have a partner, schedule a time to discuss these things.

Kindly shared by Hargreaves Lansdown

Main photo courtesy of Pixabay