Pensions Awareness Day aims to do what exactly it says on the tin – to highlight the importance of saving for the future and to engage with retirement provisions. Even though auto-enrolment means millions of people are now saving in a pension, there’s still widespread concern that people aren’t saving enough.
There are several groups of people likely to be behind on pension provision including women, low earners and the self-employed. It is crucial that these groups address their lack of retirement savings to avoid struggling in later life.
On average, women have lower private pension wealth and lower income in retirement than men. One study found a 40% gap in pension savings between women and men which equates to an average difference in pension income by gender of about £7,500 a year[1].
The gender pay gap and the fact that women are traditionally the ones to take time out of their career to raise a family, are just two of a number of factors that contribute to the so-called gender pension gap. Taking an active role in saving for retirement from an early age will help to close the gap.
The self-employed have also fallen behind. Research by interactive investor shows that four in five self-employed people are not putting any money in a pension at all. The tax relief foregone is estimated to be around £1 billion a year.
Low earners might also struggle if they only pay in the minimum through auto-enrolment. Unless they opt out, individuals pay in 5% of their salary and another 3% comes from their employer. Even if you can only afford to put a small amount aside right now, your future self will thank you for making a start.
Setting up a private pension is straightforward – many people use a self-invested personal pension (Sipp). They are offered by several investment platforms and you can set up a standing order to go each month. Choosing the investments can feel daunting but there’s plenty of ready-made packages if you don’t want to select individual investments yourself. Don’t forget to review and increase contribution levels when you can.
Keep an eye on changes
There are more things to be aware of when it comes to pensions, than simply saving as much as you can afford to. It’s crucial to keep track of the ever-shifting sands of pension rules. At the moment the age where you can access your pension savings is 55. But from 2028 it will rise to 57.
A recent study by Aegon has highlighted that 7 in 10 adults (68%) said they did not know of the rule change. Awareness was even less amongst younger age groups with 83% of 18–34-year-olds oblivious to it.
There are some exceptions planned, however. The rule change will not apply to members of the police, armed forces and firefighters who will be allowed to keep their lower minimum pension ages. Some pension schemes have it written into their rules that savers can access their pensions from 55, and this will apply even after 2028.
The Government also plans to allow individuals to keep the right to withdraw their savings at 55 if they transfer to a scheme that has the lower age stated in its rules by April 5, 2023. But the Association of British Insurers (ABI) says that the 57 age should be implemented across the board with only limited exceptions for uniformed services and those who already had a protected pension age.
Protecting the age at which you can reach your pension isn’t necessarily always the priority, however. Moving to a new scheme could boost returns if it came with lower charges and better investment options.
If in doubt with this or any aspect of your retirement planning, you can speak to a financial adviser. Paying for good advice could be money well spent.
Alternatively, if you want to open a Sipp and find the best home for your pension, use our calculator.
You can find out more about how pensions work at moneyhelper.org.uk or read our pension blogs.
Photo from Pixabay
[1] Achieving gender equality in pensions, Prospects 2020 report on the gender pension gap
