Do you know how much you'll get from your state pension? What about your personal or workplace one? Research suggests that many people don't know how much they'll receive in their post-work years, and this level of confusion could lead to a worrying shortfall in retirement income.
One of the biggest areas of confusion is with regards to the new state pension, and specifically, whether or not retirees think they'll benefit under the forthcoming flat rate system. In fact, research from Saga has found that a large number of over-50s are unsure whether they'll qualify for the new pension when it comes into effect in April next year, while a third of those surveyed have no idea whether they'll be better off.
This confusion is evenly split, however, with another third thinking that the new system will be more generous, while the remainder think it'll be less. In actual fact, it all depends on your financial situation. The new flat rate pension will be more generous for lower paid workers and less so for higher earners, a circumstance public perception doesn't typically reflect.
The potential to top-up the state pension isn't widely understood, either, with just 7% of respondents in their 50s saying that they were confident they knew how to make extra National Insurance payments to secure a better state pension.
Given such widespread confusion, Saga is calling on the Government to write to those approaching retirement with individual pension predictions, along with a clear explanation of the new system and how they can make top-up payments to qualify for a better pension. "The Government needs to do much more to raise awareness of the ways that people can boost their state pension," said Saga's Paul Green, as "while there are a minority of people who know how to make the most of what's on offer, it should not just be for a savvy few to benefit."
However, it isn't only the state pension where things can get confusing. Those saving towards a personal or workplace pension can find things equally as tricky, and here, the bulk of confusion is related to not being sure how big a savings pot they'll need to ensure a comfortable retirement.
Women in particular are at risk of running out of money during retirement, according to research from Sanlam, with many having smaller pension pots - women aged 55+ think their pension pots are worth approximately £52,000, compared with £93,000 for men - and being unwilling to invest their savings in retirement.
Then there's the fact that women often underestimate their life expectancy: on average, women believe they will live to between 82 and 85 years-old, when in reality it could be between 86 and 89. This shows that many aren't planning sufficiently, and means that not only do women have to make their money last longer, but they have a smaller pension pot to work with, too.
Unfortunately, most (49%) would invest their savings in a cash ISA, and while this has zero risk, it won't produce healthy investment returns, either. Those with a slightly higher risk appetite could consider stocks & shares ISAs, suggests Sanlam, or even buy-to-let – something that could rise in popularity following the pension reforms – because being able to get a decent return from your savings will help ensure you don't run out of money during retirement.
So, don't let a lack of awareness of the available options, or even a misunderstanding of your life expectancy, stop you from achieving the retirement income you need. Get suitable advice on all aspects of your pension, state and workplace alike, and make sure to have suitable savings vehicles to really make your money go further. A bit of research and planning ahead will mean that, hopefully, confusion won't be an issue.
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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