Experts have warned savers there is a ‘stark mismatch’
Millions of people may not be heading towards the retirement lifestyle they think they’ve saved for. Experts at PensionBee revealed the “stark mismatch” between expectations and reality for pension savings is seeing some people fall tens of thousands of pounds short without realising it until it’s too late.
It’s difficult to track just how much a person may need to save for retirement, due to uncertainty around life expectancy. Yet the Pensions UK Retirement Living Standards report state a comfortable retirement costs nearly £44,000 a year for a single person.
While diligent savers may believe this is the lifestyle they’re setting themselves up for passively, the experts revealed the average pension pot at retirement would deliver an annual income of just £18,000. That would be roughly £26,000 short per year for a comfortable retirement and just barely over the £13,400 needed in retirement annually to cover the bare necessities for a single person.
Lisa Picardo, Chief Business Officer UK at PensionBee, said: “Too many people are approaching retirement with expectations that simply don’t match the reality of their savings.
“The gap between what people need for a reasonable life in retirement, and what their pension is likely to deliver them as an income, is growing – yet individuals are still expected to navigate complex decisions at a time when their confidence is often lowest.”
The experts highlighted that for those approaching pension age, the forecast continues to darken as they face not just rising living costs but also economic volatility and uncertainty. Lisa continued: “Without clearer information, earlier guidance and support that is easy to access and understand, many savers will continue to make short-term focused, or overly cautious, decisions that may limit their income in later life.”
This could be a “strong case for rethinking how retirement income is delivered”, according to the experts. While pensions are the primary source of income in retirement, the methods and options to access these funds can be complex and hold repercussions savers may not fully understand.
With financial advice still too expensive for many, people often default into the most convenient options rather than the ones that would work best for their budget and ambitions, limiting their standard of living in later life.
PensionBee is calling for stronger, more intuitive default options in retirement, greater stability in pension tax policy, and earlier, more accessible guidance to help people make informed decisions before they reach retirement. The government and Financial Conduct Authority could be plugging this information gap in the coming months through a new targeted support regime.
Following a joint review of the regulatory boundary between financial advice, typically a one-on-one personalised service provided for a fee, and financial guidance, general information that is usually free. One result of the review is a new targeted support regime which will provide an option inbetween financial advice and guidance, providing tailored suggestions to groups of people that have shared characteristics. It is expected to launch this April.
