Pension emergency looming, with women and over-55s worst hit

• Almost two-fifths of over-55s (39%) have less than £50,000 in their pension pot* 65% of over-55s don’t know if they are being de-risked as retirement approaches, and 40% of 18-34s and 56% for 35-54 year olds
• Charges, what charges? 88% of over-55s don’t know or couldn’t guess the fees they pay to their pension provider, and nor could 56% of 18-34 year olds and 75% of 35-54 year olds
• Only 1 in 10 women have enough for a moderate retirement
• People who hold their biggest pots with traditional life companies have less understanding of and engagement with their pension savings than those who use a DIY platform.

Last week’s Pensions Awareness Week came as dark clouds gathered over the triple lock, making the issue of retirement finances hard to miss.

The PLSA and ABI campaign Pay Your Pension Some Attention launching on 20 September, will likely offer a more upbeat tone. But while the industry must do all it can to positively engage, there’s no getting away from some stark numbers.

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interactive investor, the UK’s second-largest investment platform for private investors, today publishes some startling research findings around a lack of engagement and pension blind spots that are hampering the nation’s financial resilience. Women and the over-55s are particularly at risk of running out of money in retirement.

The findings are part of interactive investor’s annual Show Me My Money 2023 pension report, and focus on people whose main pension pots are in defined contribution schemes.

Richard Wilson, CEO, interactive investor, says: “The positive impact of auto-enrolment masks a serious national issue, with a comfortable or even moderately comfortable retirement off the cards for many. Almost two-fifths of over 55-year-olds have less than £50,000 in their pension potand only one in 10 women have enough for a moderate retirement.

“We were especially surprised to find that those over 55 were the least familiar with their pensions: how much they have saved, risk level, pension fees and whether they are reducing their risk in the run-up to retirement. That’s despite having fewer pension pots.

“We all need to do better, but it is noteworthy that we found that pension blind spots are much greater among those whose main pension pots were with the traditional life companies (the high street names we’ve all grown up with), compared to those who were with more modern investment platforms. That’s not unexpected given that self-directing private investors are often highly engaged, but it is still food for thought.”

The dataexposes a looming national pension emergency, with most people not saving enough into their pensions to secure a comfortable living standard in retirement.

The research, conducted by Opinium among 2,000 UK adults, found that almost two-fifths of over 55-year-olds (39%) have less than £50,000 in their pension pot.

*Data includes all respondents with a defined contribution pension who know the value of their pensions and excludes those who only have defined benefit pensions. Data relates to value of pension savings in combined pension pots.

Data relates to combined pension pots and all pension savers with defined contribution pensions who could estimate the value of their pension savings and excludes those with only defined benefit pensions. Figures are rounded and may not add up to 100%.

The research reveals that most over-55s are not on track for a comfortable or even moderately comfortable retirement.

According to the 2022 Pensions and Lifetime Savings Association, a single person needs to retire with a pension pot of £248,000 to achieve a moderate lifestyle. 

Let’s not talk about risk

While the amount of risk taken has a significant impact on outcomes, the research found that awareness of risk was low across the generations. Some 65% of over-55s do not know if their pension fund is gradually being moved into less-risky investment options as they approach their planned retirement date (‘de-risking’). That’s worryingly more than the proportion of those aged 18 to 34 (40%).

Some 28% of over-55s don’t know or can’t remember how much risk they are taking, and nor can 29% of 18- to 34-year-olds.

And some 73% of over-55s don’t know what assets they are invested in compared to 43% of 18-34 year olds.

Alice Guy, Head of Pensions and Savings at interactive investor, says: “Lots of people are struggling to save properly for their futures, but some sections of society are particularly at risk of not having enough money in retirement. We can't all control the amount of money we pay into our pensions, particularly when times are tough. But what we can control is risk, which can be fundamental to achieving retirement goals. If you don’t know your risk, you can’t plan.”

James Daley, founder and managing director of consumer group Fairer Finance, comments: “As less and less people end up with generous defined benefit schemes in retirement, it’s clear that the gap in pensions wealth is widening. Although auto-enrolment has ensured that more people are saving into a pension, it’s also had the unintended side effect of creating a less-engaged generation of pension savers. The findings of this research show that many people still have no idea how much they’ve got, how it’s invested, how much they’re being charged - and how they’re going to de-risk their portfolio as they approach retirement. It may be time for the government to admit that auto-enrolment has not gone far enough. We need more advice and support in the workplace, so that younger generations are engaged with their pensions, and have a plan about how they’re going to meet their retirement goals.”

Only 1 in 10 women have enough for a ‘moderate’ retirement

The data also highlights the significant gender pension gap. Just 9% of women have £250,000 or more in their pension, while 18% of men have over £250,000 saved.

A third (32%) of women don’t have a pension of any kind compared to a fifth (20%) of men, and where they do, savings are less than half the average of men’s (£25,000 versus £55,000).

The research also highlights further gender differences, with 38% of women claiming they do not know the amount of risk they are taking compared to 22% of men. Further, 71% of women don’t know what type of assets they are invested in compared to 53% of men.

Data includes all pension savers with defined contribution pensions and excludes those with only defined benefit pensions and those who have no pension outside the state pension.

*Median average. Data includes all pension savers with defined contribution pensions who could estimate the value of their pension savings and excludes those with only defined benefit pensions. 

**Base includes all survey respondents, including those with defined benefit pensions 

Alice Guy says: “It’s appalling that only one in 10 women are on track for a comfortable retirement. Having taken a decade out of work myself due to caring responsibilities, I’m all too aware of some of the issues, and it is horrifying.

“There are no easy answers here, which is why we need to see what we call ‘meaningful transparency.’ It’s why we published Show Me My Money. Too many people, most but by no means exclusively of whom are with the traditional life companies, have no idea of their risk profile or charges they pay. And it is particularly urgent for women. Because if our pensions are ever going to get anywhere close to men’s, we need to be in a position of knowledge, so we can plan.”

Charges

Worryingly, nearly nine out of 10 (88%) of over-55s don’t know what annual fees they are paying for their pension, more than a third (37%) don’t know how much is in their pension pot, four in 10 (38%) don’t know when they last checked their pension online and one in five (23%) don’t know when they last checked their pension on paper.

Data includes all pension savers with defined contribution pensions and excludes those with only defined benefit pensions and those who have no pension outside the state pension.

*Median average. Data includes all pension savers with defined contribution pensions who could estimate the value of their pension savings and excludes those with only defined benefit pensions.

**Base includes all surveyed

The research also found a large gap in engagement and knowledge between those who held their biggest pots with traditional life companies** and those who use DIY platforms*** (see notes to table below).  Among those holding their main pension with a traditional life company, seven out of 10 (72%) don’t know what annual fees they are paying, nearly one in four (23%) don’t know how much they have in their pension pot and over half (55%) don’t know what assets they are invested in. In contrast, among DIY platform users, just 6% don’t know what annual fees they are paying, one in seven (14%) don’t know how much they have in their pension pot, a fifth (20%) don’t know what assets they are invested in.

Alice Guy adds: “While more and more people are moving to interactive investor because of our great value, transparent, monthly flat fee, our research findings are stark: most people are in the dark about the charges they are paying, and particularly those with the large traditional pension companies.

“Over a lifetime of pension saving, the differences between providers can add up to tens of thousands of pounds. At a time when too many pension pots are going to struggle to cover what people need, we can’t afford to ignore costs.”

*Includes all respondents who have their biggest pension with the biggest six traditional life companies by the Opinium data: Aviva, Standard Life, Scottish Widows, Legal & General, Aegon, and Prudential.

** Includes all respondents who have their biggest pension with the biggest DIY platforms: including Halifax, interactive investor, Hargreaves Lansdown AJ Bell, Fidelity, Pensionbee and Bestinvest.

***Median average. Data includes all pension savers who could estimate the value of their pension savings.

Alice says: “People who manage their own pensions are likely to be more engaged, so it’s not a great surprise that DIY platform users know more about their pension investments than life company customers. However, we think it is concerning that so many people who use traditional providers do not know how much they are paying in fees, how much they have saved, or what they are invested in. Having said that, we’re also surprised at the numbers on DIY platforms lacking the same knowledge, so there is clearly work to be done there too.

“There’s no question that we have a growing issue when it comes to pension saving. Many people are heading for a poor retirement; their pensions are failing them. We think it’s time for the government to look again at minimum auto-enrolment rates and increase minimum contribution rates to 12% to give people a better chance of reaching a good standard of living in retirement.

“At interactive investor, we’re working hard to be as transparent and informative as possible and will continue to expand our resources to help people prepare for and enjoy their retirements. However, everyone has a role to play in improving pension knowledge and engagement. The industry has work to do, but people can also take some control and help themselves. Taking simple actions like asking providers about fees and investment choice, checking your personal and employer contributions, tracking down your different pension pots and considering taking financial advice, will give you a better understanding of your situation and make a big difference to your long-term finances.”