Studies released this week show the increasing pressures faced by those saving for retirement. Rising care costs are reducing inheritances that many were planning to use towards their own retirement savings, while Covid-19 is stretching people between saving into an emergency fund for today or saving for the longer-term. Those living in the south have a more diverse range of sources to fund their pensions compared to those in the midlands and north, potentially reducing the resilience of their pension savings should their main income source fall.
Those wanting to find the best way to save for retirement are grappling with a potentially volatile stock market, as the economic shock of the Coronavirus pandemic continues, alongside the lowest savings rates in history. Despite concerns about the performance of the stock market, results from the Office of National Statistics (ONS) Wealth and Assets Survey show that the majority (57%) of people still believe workplace and personal pensions to be the safest home for their retirement funds, followed by a quarter of people that see property as their safest place for retirement saving.
The expectation of what would add the most value to their pension savings was significantly higher for property compared to a workplace or personal pension. More than two-fifths (43%) of people believed property would make the most of their money compared to 33% for personal and workplace pensions. A greater proportion of people in the East of England placed their confidence in property, with 53% stating this as the best-performing option.
Even though savings accounts and ISAs have Government protection from the Financial Services Compensation Scheme (FSCS), only 10% thought these would be the safest place for their retirement savings and only 11% expected them to generate the greatest value.
Investing in property may be even more appealing now due to the stamp duty holiday, which could save buyers thousands when looking at acquiring properties for buy-to-let. However, those in workplace schemes should remember that they will also benefit from their employer making contributions into their pension pot and sometimes the more the employee contributes, the more the employer will add as well.
The way savers expect to fund retirement appears to have a north-south divide, with more of those in the south and east (south) expecting investments and inheritances to feature in their pension savings than compared to those in the living in the midlands and the north (north). Those expecting investments were between 42% to 48% in the south and 33% to 40% in the north. Expected inheritance as part of a pension pot was 19% to 25% in the south, and 11% to 17% in thenorth.
Nearly two-thirds will be looking to get most of their pension income from the state or their workplace or personal pension and only 8% think savings will be their primary source of retirement income. Londoners bucked this trend, with nearly double the percentage of respondents relying first and foremost on their savings to pay for their retirement.
Concerns about the standard of living in retirement were split, as 55% of respondents felt confident of a good standard of living in retirement and 45% did not feel confident about achieving this. Those groups least confident of having a good standard of living in retirement identified as having a disability or illness and those looking after family members and/or the home.
Research from Charles Stanly, a wealth management service, identified that the cost of care is becoming an increasing concern for those with older parents. Over a fifth (21%) of adults know their parents are already paying for or will need to pay for care in the future. Two in five believe their inheritance will be reduced because of rising retirement and care home costs and the survey from the ONS supported this, with the numbers of those expecting inheritance to form part of their retirement savings reducing from 21% to 17% in the past two years.
Some are acting as a result and nearly a quarter are already living with their parents or are considering this, not only to manage costs but also to make sure their parents are not alone. However, there still seems to be a fear of talking about retirement plans and how to manage issues such as care and costs as only one in five 39-to-53-year olds had discussed their parent’s retirement plans with them.
Commenting on the ONS Wealth and Assets Survey, Alex Price, director of financial planning at Charles Stanley, said: “As the cost of retirement soars, it’s unsurprising that 17% of adults plan to use their inheritance for later life. Our own research shows a similar pattern, as we look set to receive an average inheritance of £78,000 from our parents, with one in seven already mentally spending it and earmarking the cash to fund retirement costs.
“However, this significant transfer of wealth is rarely talked about with just a fifth of adults admitting that their family discusses inheritance, risking bigger inheritance tax bills than are necessary. It’s important that families have the ‘money talk’ so they can plan ahead and as much of their hard-earned money as possible is passed on to loved ones so they can make the most of it.”
Nearly a fifth of the over-50s have seen an impact on their savings and retirement plans due to the pandemic, according to research from Co-op Insurance. Of those impacted, a quarter had delayed their retirement and a fifth had been forced to use their retirement savings due to their worsened finances. A third of respondents had chosen to retire earlier than planned.
Research from Cushon, a workplace saving fintech, has found 73% of respondents now saw saving into an emergency fund as equally as important as saving for the longer-term. Just over half said they would pay into a workplace savings scheme if this was affordable to do so.
Steve Watson, head of proposition, Cushon, said: “Financial worries are widespread and there is so much uncertainty for many of us right now. Providing a workplace savings initiative, where employees can contribute directly from their pay packet is a great way for businesses to support financial wellbeing and help employees become more financially resilient.”
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