Retirement Planning News: Cost-Of-Living Woes Force Brits To Delay Retirement

31 August: 10-Fold Spike In Retirees Worried About Running Out Of Cash

The UK has witnessed a marked increase in the number of people who have remained in work over the past six years despite their being of pensionable age, according to insurance company Aviva.

Aviva said that, at a time of rising cost-of-living pressures, fewer people across all age groups who were eligible to retire have done so.

The insurer said that the greatest shift has been among those aged between 65 and 74. Whereas 92% of this age-band were already retired in 2016, by this year the figure had dropped to 79%.

Aviva said the reason for this was an increase in the state pension age, which was raised from 65 to 66 between December 2018 and October 2020 and is set to rise further in the future, hitting 67 in 2028.

In 2016, 96% of people aged between 65 and 74 said the state pension accounted for at least some of their income, compared with 71% today. According to Aviva, this equates to a 25% decrease in the proportion of people in this age bracket 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 commitment to restore the so-called ‘triple lock’.

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

The inflation measure for the year to July stood at 10.1% and is predicted to move higher this autumn.

Aviva added that, for those over 65, money worries about retirement figure more prominently compared with six years ago.

In 2016, 1% of this age group said they were worried about running out of money in retirement, while another 1% acknowledged they would not have enough money to fulfill later life 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 plugged by wages, our survey shows there’s still a significant shortfall for around a fifth of over-65s, which has translated into them worrying more about having enough money in retirement.”


24 August: Young Workers Who Cut Pension Payments Have Most To Lose

Twenty-somethings who cut back on their company pension contributions because of the cost-of-living crisis could end up £60,000 out of pocket, according to Broadstone.

Analysis by the consultancy shows that young workers who reduce the amount they pay into their workplace arrangement could erode a quarter of their pension, assuming they did not reverse the move.

A study by pension provider Standard Life has also revealed that, with inflation at a 40-year high and in the face of soaring energy bills, about 6% of workers in the UK are planning to reduce their pension contributions to make ends meet.

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

The company also assumed employees were earning the national average pay for full-time workers of £38,131, with the figure rising by average inflation of 2.5% over the course of their working career until state pension age. This is currently 68 for individuals born after 6 April 1978.

The figures show that the youngest pension savers had most to lose, given the additional years they would be saving a lower proportion of their salary into their pension.

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

The consultancy said employers should maintain records of all staff who decide to reduce pension contributions with a view to encouraging them to restore payments at their earliest convenience. It also called on companies not to reduce employer contributions.

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

“Freeing up additional income may be a sound and necessary financial decision, although we would encourage people to seek help to see if there are other ways to meet their day-to-day spending given the tax-efficiencies and employer contributions that pension savers benefit from.”


23 August: Young Adults Fear Missing Out On State Pension

About one-in-three young adults in their 20s (30%) believe the UK state pension will no longer exist by the time they retire, according to the insurer Royal London, Andrew Michael writes.

Research by the company also found that around half (50%) of young adults expect the state pension will be less generous in future compared with its current level of around £9,600 a year.

Royal London says more than half of young adults (56%) expect to have to wait until they are over 70 years of age before they will be able to claim the UK’s main retirement benefit. For anyone born after 6 April 1978, the current state pension age is 68.

The amount of state pension an individual receives is dictated by his or her National Insurance (NI) record. But three quarters of those questioned by Royal London (74%) were unaware that to receive the full state pension requires 35 years of NI contributions or credits.

A recent study by pension provider Standard Life revealed that, with inflation at a 40-year high and in the face of soaring energy bills, about 6% of workers in the UK are planning to reduce their pension contributions to make ends meet.

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

“But concerns about when and how much state pension will be available might lead to an expectation that they’ll need to self-fund a greater portion of their retirement. Future financial security is likely to mean working for longer than previous generations and also saving more.”


23 August: 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 commitment to restore the so-called ‘triple lock’.

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

The CPI inflation figure currently stands at 10.1% and, if anything, is predicted to get higher through the remainder of this year. If that remains the case, around 10 million pensioners will receive a state pension increase in excess of 10% next year, taking the state pension past £10,000 to its highest-ever level.


15 August: Employees Chop Pension Contributions

Nearly one-in-10 workers are planning to cut the amount they pay into their company pension to combat the cost-of-living crisis, Andrew Michael writes.

According to research from consultants Barnett Waddingham, 7% of employees – equivalent to 1.05 million people – said they are looking to reduce the amount they contribute to their workplace pension.

A workplace pension is a way of saving for retirement that’s set up by an employer. All employers are obliged to offer one, with employees contributing a minimum of 5% of earnings and employers contributing at least 3%.

Employees are automatically enrolled onto their workplace scheme, although it is possible to opt out.

The company added that the figure rose to nearly one-in-five (18%) workers in the age-range 18 to 34. According to Barnett Waddingham this is the age group for whom it’s most vital to lay the foundations leading to a stable financial future.

The company found that about a fifth of people (19%) had already looked to tackle the squeeze on their household finances by cutting out everyday luxuries such as streaming service subscriptions.

But it reported that the cost-of-living crisis was also beginning to impact on the ability of people to make financial plans.

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

The company warned that most people are not saving enough into their pensions in the first place and that “these developments could have a profound impact on [their] financial resilience”.

Barnett Waddingham’s Mark Futcher said: “The cost-of-living crisis has forced many people to take a long hard look at our finances.  But while there’s clear merit in doing some financial spring cleaning, cutting back on financial planning commitments could have a dramatic impact on long-term financial wellbeing.”

He added: “At a time of significant financial hardship, it’s important that employers do their bit to help employees keep their heads above water.  At a basic level this means providing stronger financial guidance for employees and encouraging them to think twice before making knee jerk decisions with their finances.”


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