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Economic uncertainty impacts retirement saving

Economic uncertainty impacts retirement saving

Category: Retirement

Updated: 09/08/2017
First Published: 09/08/2017

Saving for retirement can be a challenge, with other shorter-term goals often taking priority and a lack of disposable income limiting the amount that can be saved. However, research from Close Brothers Asset Management shows that other factors can take their toll, too, with economic uncertainty thought to be a key challenge.

Lack of security

The research found that economic uncertainty is a key concern for more than a third (34%) of people when it comes to their ability to save for retirement, while a further 30% said that they're specifically worried about political uncertainty around Brexit and the resulting impact on their retirement saving. A further 26% cited economic uncertainty as their biggest concern in making their money last once retired, so it's clear that these concerns could have long-term impacts.

However, these concerns appear to have a positive knock-on effect, as 11% said they're likely to speak to a financial adviser more regularly in order to prepare for the potential upheaval ahead. Others are becoming more cautious when it comes to their investments, with 15% planning to take fewer risks with their money.

Low interest rates

Wider economic factors are also taking their toll on interest rates, which can dramatically impact the incomes of those who are already retired. Additional research from Key Retirement shows that savings and investments are contributing just £2,200 a year to pensioner incomes, as record low interest rates reduce the amount that can be earned.

The figures, based on analysis of Government data, show that savings and investment income contributes just 8% to the average retired household's income, equating to just £42 per week, largely thanks to the dramatic fall in savings rates since the financial crisis. Indeed, in the year 2007/08, the average retired household made around £2,650 a year – or around 11% of their annual income – from investments and savings, so many are notably worse off.

"The squeeze on saving and investment income is a major issue for retired households," said Dean Mirfin, technical director at Key Retirement. "The stock market has recovered and grown strongly since [the financial crisis] but pensioners who mainly rely on cash savings are not seeing the benefits, as rates have been at historic lows for more than eight years."

Plan ahead

These figures highlight the importance of planning ahead, and of doing everything you can to build up a decent pension pot – economic uncertainty or not – as relying on cash savings probably won't cut it in retirement.

After all, data from the ONS shows that the income of retired households with a private pension can be a whopping 60% higher than for those without such provision, standing at £534.75 per week for those with a private pension versus just £331.33 for those who hadn't built up their own pot, equating to annual incomes of around £27,800 and £17,200 respectively.

"These latest official statistics are a stark reminder of the impact failing to save for retirement can have," said Tom Selby, senior analyst at AJ Bell. "Government reforms, primarily automatic enrolment, should go some way to improving retirement outcomes in the UK but savers need to realise that the responsibility is firmly on their shoulders."

This means you need to save as much as you can from as early as possible, ideally above the minimum auto-enrolment contribution level, to ensure you're as prepared as possible. Don't let economic uncertainty or low savings rates put you off – find out more about a workplace pension and why you need one, together with the benefits of automatic enrolment, and start saving!

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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