How much do you know about your pension? Do you know what funds your scheme invests in, for example, or the performance of those funds? If research from The Share Centre is anything to go by, you may not be as familiar with the whole thing as you perhaps should be, with many people not even aware of the basics.
The figures highlight a clear lack of awareness when it comes to how pensions work, with 20% admitting that they didn't even know that their pension savings are invested in the stock market. This is despite the fact that pensions have come squarely under the spotlight recently, with everything from automatic enrolment to the pension freedoms encouraging people to engage and interact with their schemes – but unfortunately, it seems that it may not have had the desired effect.
It isn't only personal pensions that cause confusion, either, as many of those surveyed didn't know how much they'd receive from their state pension, with 28% admitting that they didn't know how much it was worth. However, some could be in for an even bigger shock, as 20% are under the assumption that it's over £10,000 a year, which means that a fifth of respondents could get an unwelcome surprise – and a meagre retirement if they don't have any other pension savings in place.
The younger generation are the most naïve when it comes to expectations, with 27% of under-34s over-estimating the state pension by £4,000 a year, but happily, this is also the age group that has the most time to get informed, and the most potential to change their fate and start building up a suitable pension pot of their own.
This could be particularly wise given that 57% of those surveyed don't even think that the state pension will exist when they reach retirement, but whether or not that's the case, the fact that it may not be all that savers hope for means it's vital to consider some income-boosting alternatives.
The key is to start saving as soon as possible, be it into a workplace pension (which has the added benefit of Government tax relief and employer contributions), a personal pension, or even an ISA, and this is a route that a growing number of people are choosing to go down.
In fact, The Share Centre reports a clear increase in the level of ISA contributions by the over-55s since the pension freedoms came into force (up 13% year-on-year), which suggests that many are looking to alternatives to boost their retirement income, and that most are taking the sensible route and not spending their pension pot irresponsibly.
Richard Stone, chief executive of The Share Centre, commented on the findings: "It appears that not only are people in the dark when it comes to the workings of their pension, but when it comes to a state pension, many are massively over-estimating this Government-funded safety net, [which] is likely encouraging a lack of urgency in younger people to start setting money aside for their future.
"However, although those starting out in work are often challenged by other financial demands such as student debt, housing costs or starting families, just putting a small amount aside on a regular basis can help build a meaningful savings pot for retirement. We have seen alternative savings products like equity ISAs becoming more popular since pensions freedom, [and we] expect to see more people shift focus from pensions to equity ISAs in the future."
Opting for an equity ISA (or a stocks & shares ISA in other words) will enable savers to "drive further investment growth and income from those savings tax-free", said Richard, and it has the potential to boost their income if alternative sources aren't delivering as much as they'd hoped. However, stocks & shares ISAs come with far more risk than their cash-based counterparts, which means a cash ISA shouldn't be overlooked, either.
Whatever route you choose to go down, make sure to start as soon as possible, and educate yourself about your personal/workplace pension as well as the state pension to get a better idea of where you'll stand in the future.
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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