British employees need more education on pensions before they must face the harsh reality of their retirement
Only 26% of those aged 55+ who are currently working know what a pension is, but they do not know how they work, according to the latest research from the Chartered Institute for Securities & Investment (CISI). Worryingly 10% of 18-24 year olds who work don’t know what a pension is and how it works.
Over half (56%) of workers who are contributing to a pension don’t know how much they are paying into their pension each month. For those who were aware, the median amount paid monthly into their pension pot by workers was £120, with maximum of £164 paid monthly by 35-44 year olds and the minimum of £50 paid monthly by 18-24 year olds.
While 81% of workers stated they check their bank accounts on a weekly basis, a third (34%) stated they never check their pension account. This means a substantial amount of British workers are unaware of the value of their pension, as the study found three quarters (76%) of respondents don’t know the value of their fund. Significantly more women (80%) than men (72%) were not aware of the value of their pension.
This lack of awareness could be setting people up for failure particularly for over half (56%) of respondents who declare they would like to retire in their 60s. Only 1 in 11 (9%) reported that they make additional contributions to their pension fund, and 39% of respondents said that they have considered doing so.
Clive Shelton Chartered FCSI, Chairman of TISA said, “This survey offers important insights around the issue of financial capability and adds to the evidence that a high percentage of individuals do not understand pensions or tax relief benefits. It highlights the need for industry and government to work collaboratively in order to develop a framework that builds public trust and enables individuals to make informed retirement decisions. We must continue to increase good financial habits from an early age with education initiatives in schools, like KickStartMoney.co.uk, through to the delivery of effective engagement solutions for employees.”
In terms of funding their retirement, most workers who hope to retire expect to fund this through their workplace pension (58%) or state pensions (57%). More than a quarter (27%) will rely on their private pension or personal savings, with personal savings being the most popular for under 35s. only 10% of respondents have not considered how they will fund their retirement.
Only 1 in 8 (13%) said they would be able to retire when they wanted to as they believed they had saved and planned appropriately for retirement. Almost half of workers who hope to retire (45%) believed their standard of living would decrease in retirement, with 38% feeling their standard of living would stay the same (39% of 18-24 year olds) whilst 8% felt it would increase during retirement (18% of 18-24 year olds).
Simon Culhane Chartered FCSI, CISI CEO said , “With 39% of 18-24 year olds believing their standard of living will stay the same during this period of their lives, yet £50 is the average amount this age group are currently paying into their pensions (with 35% of 18-24 year old workers saying they will rely on their bank savings to fund their retirement) the funding gap is too huge to make their retirement dreams a reality. Their dreams, sadly, are likely to become their nightmare.”
More than a quarter (28%) of respondents were ignorant when it came to how their pension fund is invested. Respondents were most concerned about investments in armaments or countries with alleged dubious human rights (69%), slightly less so with the tobacco industry (56%), gambling industry (54%) and the alcohol industry (35%). 56% of all workers with a pension were interested in investments in community and 61% environmental projects.
The study found the most trusted person a worker in the UK would go to for advice was a qualified financial adviser (46%), with a good friend/relative coming close at 28%, bank 25%, online guidance 20% and the Government 8%. Five per cent said they would trust digital / print media and 10% said they would not trust anyone when seeking financial advice.