Three in four of those approaching retirement have no idea how their pension pot is performing.
Axa warned millions could face a ‘nasty shock’ at retirement as they discover just how low their retirement income will be. One in five current pensioners surveyed was caught out by lower than expected annuity rates, while one in ten found their retirement income was significantly less than they expected. Meanwhile a quarter of current pensioners have seen a drop in their standard of living in retirement. Of these, as many as one in four have had to cut back on essentials such as food and heating. Just ten per cent reported that they have never been better off.
The survey by AXA Life came as a separate official report revealed ‘highly unnerving’ pension trends. The number of people contributing or having contributions paid into an occupational pension scheme dropped again last year. There were 7.8 million active members in schemes last year, compared to 8.2 million in 2011 and 12.2 million at the peak in 1967.
John Fox, managing director of Liberty SIPP commented on the figures:
“This latest pensions data is once again highly unnerving. The continued decline in active members of occupational pension schemes bodes very ill for the future.”
Three in ten pensioners feel they need additional income to feel comfortable (Source: AXA Life)
“For whatever reason, economic or otherwise, more and more people are letting their saving for retirement slip.”
He said it is possible many people have put any prospect of pension planning on hold altogether, thanks to high inflation, low wage growth and general financial hardship.
“It's hard to save for the future when managing in the present is tough enough,” he added.
Outgoings: As many as 43 per cent of people in their 50s and 60s think they will spend most of their income on holidays and leisure once they reach 75.
“Overall, though, this data confirms once again how the pensions time bomb continues to tick. And with every year that passes, we are running out of options to defuse it.”
However, while the number of people contributing to occupational pensions has dropped, total membership rose by 400,000 last year. This could be as a result of auto-enrolment, which sees employees automatically signed up to a company pension scheme.
The number of people contributing to occupational pension schemes fell again in 2012 (Source: ONS)
The Government is hoping that the introduction of automatic enrolment, and the high-profile advertising campaign that has run alongside it, will encourage people to take a more active interest in their pensions. It is also looking at measures that could potentially improve defined contribution pension schemes, which will be the default for the majority of those being auto-enrolled.
The number of pensions paying out in occupational pension schemes continues to rise (Source: ONS)
Another innovation that is being considered is 'pot follows member', where a person's pension savings automatically transfer when that person changes jobs. Pensions minister Steve Webb wants people to have consolidated pension pots rather than separate ones for each employer, some of which get forgotten by workers by the time they reach retirement.
Simon Smallcombe, UK managing director for AXA Life Invest commented on the survey:
“Our report shows that too many pensioners have been caught out by rock-bottom annuity rates. But this shock to the system is avoidable. It pays to start planning early – ten to fifteen years before your retirement date, not six months. The next generation of retirees must resist the urge to accept the first annuity an insurer offers them and make sure they look at all their options.”
By Rachel Rickard Straus, on thisismoney.co.uk, 26th September 2013.