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Today marks the two-year anniversary of the pension freedoms being introduced. These freedoms revolutionised the pensions industry and effectively removed the obligation for most pension savers to buy an annuity, and it seems that people have been taking notice. Indeed, research shows that millions of people are saving more into a pension as a direct result of the freedoms, and they've boosted their pots by an average of £21,000 in the process.
That's according to research from Aegon, which found that 14% of the working age population are saving more into a pension as a direct result of the freedoms, which means an estimated 5.5 million people are saving more than they were two years ago. This is reflected in the growth of UK retirement pots: on average, people now have £50,000 saved in pensions, up from £29,000 in April 2015, equating to an impressive £21,000 increase in just two years!
Happily, the freedoms have also prompted more people to consider their future plans, which could transform the retirement of those individuals. Indeed, 15% of respondents have realised they need to plan more for retirement, up from 10% a year ago, while the proportion of people engaging with an adviser about their retirement plans has almost doubled over the same period.
Many are becoming more realistic about their potential retirement income, too, with aspirations not being quite as far-fetched as they once were. As it stands, the average annual income people would like in retirement is £32,000, down from the £38,000 hoped for last year, and well below the £41,000 people were hoping to retire on in April 2015.
This could still be out of reach – after all, these incomes are still above the average UK income of £28,200, and far higher than the average pensioner income of just £15,392 – but aspirations are at least moving in the right direction, which means reality may not come as such a shock.
"The 2015 pension reforms put many more retirees in the driver's seat for the first time," said Steven Cameron, Pensions director at Aegon. "Two years on and all the signs point to the pension freedoms having paved the way for a smoother road to retirement: people have moved up a gear, saving more and becoming more engaged with their pensions.
"Giving retirees the freedom to do as they please with their money is having an impact not only on those who are taking advantage of that freedom today, but the trickle effect is positive down the generations. It seems that bringing freedoms to pensions and saving for retirement has boosted their appeal across working life, with 5.5 million UK savers contributing more to their pots."
However, he points out that there's still a long way to go. The report found that 36% have never engaged with their pension savings or taken steps to review their retirement plans, and although this is down from the 50% who said the same two years ago, it's still a worrying figure. Key reasons include that they don't understand how to review their plans for retirement (22%) and a lack of online services or information (15%), yet for 12% the main barrier is simply the fear of seeing how little they have saved.
"People will need to accelerate their saving to reach their retirement destination and make the UK a nation of long-term savers," concluded Steven. "Over a third of the adult population have never taken any action that affects their plans for retirement, and these people must be encouraged to engage and save more, or face a very uncertain future."
It's hoped that auto-enrolment will go some way to solving this, but it's all about being proactive. If you're not yet engaging with your pension, now's the time to start – check the performance of your pot, and if you can, try to increase your contributions. Saving as much as you can from as early as possible is key, and hopefully, you could boost your pot by an even greater amount in a few years' time.
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