Do you know the best way to save for retirement? If not, you're not alone, because research from Aberdeen Asset Management has revealed the extent of confusion about the pensions system in the UK, with the majority finding it difficult to know where to start.
The figures show that 65% of respondents aged 18-64 find it difficult to understand where is best to save their money for retirement, while 61% said it's difficult to know how much to save in order to get the retirement income they're hoping for. A further 57% aren't fully aware of how they can access the money they pay into a pension scheme – suggesting that more needs to be done to communicate the benefits of the pension reforms – while 24% didn't know what income they'd need in retirement.
Given the level of confusion surrounding the system and pension saving as a whole, it's perhaps unsurprising that 22% of those surveyed don't have any form of savings, but this could change should employers have a bigger input: 48% of respondents said that higher contributions from employers would encourage them to save more, so it's clear to see how big a role employers play in encouraging the savings habit.
"As a nation we are bewildered by the pensions system with people not knowing how much to save or even where to save it," said Gregg McClymont, head of Retirement Savings at Aberdeen Asset Management. "What is clear is the importance of the employers' role: if companies contribute to an individual's pension it incentivises that person to save more. That makes it critical that we continue to build a workplace pensions system for all."
Unfortunately, those hoping that they'll be able to fall back on the state pension in lieu of their own pension savings could be disappointed, because analysis from Hymans Robertson has shown that many workers – specifically lower earners – could lose out once the new flat rate system comes into being.
The loss could be marked, too, as their calculations show that workers earning £15,000 or less and with 50 years of employment behind them would receive a state pension of £7,865 per annum under the single tier system, rather than the £10,896 they'd receive under the current system.
This means that they'd be £3,031 worse off per year, which further highlights the importance of private or workplace pension saving – and the need to understand how it all works. If you're approaching retirement age make sure you understand the basics by speaking to Pension Wise, but even if you're years away from retirement, it's vital to know what's going on.
Start by researching the area so you know what to expect, and make sure to be proactive with your pension savings – stay on top of your pension statements so you've got a better understanding of the kind of retirement income you can look forward to, and consider increasing your contributions if you're some way off your goal.
You may want to get professional financial advice so you can be confident in your financial future, and if you're not signed up to a workplace pension yet, it's time to sort it! Failing to sign up means you're missing out on tax advantages and contributions from your employer, so it makes sense to get involved and banish the confusion.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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