Growing pension uncertainty sparks a downturn in retirement saving
Growing uncertainty over the future of the state pension and a rise in unsecured debt has sparked a worrying downturn in saving for retirement, new research has found.
According to the latest retirement survey from Interactive Investor, only 44 per cent of UK savers believe the state pension will still be in place when today’s young people approach retirement.
In particular, one in five young people do not think the state pension will exist, while older generations are also cautious of its future, with over a third of Gen X not believing it will still be an option for younger generations.
Confidence in workplace pensions is also shrinking, with only a minority of savers believing it will be the main source of funding upon retirement.
Instead, young Brits are preparing themselves to continue working into old age, believing that will be their main source of income post retirement.
Craig Rickman, personal finance editor at Interactive Investor said: “Fears about the state pension’s future have clearly reached the ears of Millennials and Gen Z, who don’t expect it to be their main source of income in retirement.
“Many feel they will continue working…we have no idea how the state pension will look down the line.”
However, nearly 25 per cent of respondents said they would feel more empowered to save if pension rules stopped changing, giving them more clarity on how to save effectively.
Cost of living and unsecured debt
Rising living costs have caused both short and long-term financial issues, forcing people to shift their focus to other priorities, such as paying rent over adding to their pension pot.
However, increased costs have also led to more people relying on unsecured debt, making saving for retirement increasingly difficult, with 43 per cent of respondents admitting having debt, up from 39 per cent two years ago.
For those in retirement, 26 per cent admitted being weighed down by debt, averaging £1,750, due to struggling to afford their lifestyle.
Rickman said: “The trend of rising unsecured debt …paints a rather concerning picture, especially since it’s become more expensive to borrow money in the past few years.
“For those still working, having unsecured debt means reduced scope to build retirement savings and improve future financial security, while retirees will have less of their income to spend on doing things that they enjoy.”
Gender gap persists
Despite progress from the government and industry figures in closing the gender pension gap, many women are still struggling to build significant wealth.
According to the survey, women have lower pension wealth than men, holding an average £17,500 compared to £37,500 for men, while only 18 per cent have more than £100,000 in a workplace pension.
This staggering gap has led to women lowering their financial expectations for retirement.
On average, they expect to have just £150,000 in pension wealth by the time they leave employment, while men expect £250,000.
The difference in wealth has been credited to a lack of pension knowledge among women, the gender pay gap as well as women being more likely to take career breaks.
Camilla Esmund, senior manager at Interactive Investor said: “Despite the success of auto enrolment, it has not been enough to close the persistent gender pension gap.
“The pay gap, career breaks for children and care giving and longer life expectancies, all make it more difficult for women to build long-term wealth.”