If you're approaching retirement, thoughts are probably turning to how you're going to fund it. But are you confident about being able to do so effectively? Unfortunately, research from Close Brothers Asset Management has found that a worrying number of people aren't, with many lacking the savings to feel fully prepared.
In fact, the research shows that just 24% of over-50s surveyed felt fully financially prepared to fund their retirement, with less than half (49%) being confident that they had enough saved to ensure a 'reasonable standard of living'. Even more worrying, one in five had never contributed to a pension, leaving them wholly reliant on alternative savings or the state pension.
This suggests that, despite the new pension freedoms that grant savers additional flexibility and far more options at retirement, there's still a significant lack of planning among consumers. Just one in four have carefully thought about when they should retire, and 8% don't think they ever will – for some this is due to personal choice, but others simply haven't taken the necessary steps that will allow them to leave the workforce.
The figures also revealed that, even though 83% of this age group had heard of the freedoms, understanding of the specific changes was lower. Tax implications were a particular area of confusion, with fewer than one in five knowing about the abolition of the 55% 'death tax', for example. Even so, there's a worrying lack of desire to seek advice about the new options – 28% plan to consult Pension Wise while 27% will seek independent advice, but worryingly, almost a third (31%) weren't planning to take any financial advice either prior to, or at, the time of retirement.
Penny Lovell, of Close Brothers Asset Management, commented: "The new pension freedoms provide those aged over 55 with almost unprecedented options in retirement. But a worrying number are approaching these new options with one hand tied behind their back financially, without sufficient savings to start with. For the freedoms to have the positive impact intended, people need to visualise the retirement they want to achieve, and then take the necessary steps to ensure they have the finances to support this earlier in their careers."
Whether you're approaching retirement or are years away from that stage of life, the fact remains – it's important to be prepared. If you're of the younger generation you've got plenty of time to get organised, so don't view it as something that won't affect you for years to come – the sooner you start saving, be it into a workplace pension or a dedicated savings account (or, ideally, both), the more you'll be able to benefit from compound interest, and over time that can build up into a healthy pot for retirement.
However, don't overlook advice at this age, either. "The role of financial advice is as important for the younger generations as it is for those retiring," said Lovell, particularly when it comes to understanding the level of risk required in your pension portfolio. This can be "a difficult process without guidance, [but] the earlier this planning is considered, the more likely retirees are to meet lifestyle goals in later life."
While you should ideally start planning for retirement as early as possible, even if you're rapidly approaching your retirement date and don't feel you're ready for it, all is not lost. Getting advice is still the best course of action, and knowing how you'll be able to turn your pension into a retirement income can give you the peace of mind you need.
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