People Saving reaches record UK high - but 8 million people think they will never retire.

The Scottish Widows 2019 retirement report made for interesting, and in some places, eye opening reading. The 2019 report by Scottish Widows is their fithteenth straight year of keeping track of the nations views and attitudes towards savings and retirement, and while it always makes for interesting reading, some of the revelations this year have really prompted a dialogue among economists and financial institutions regarding the changing trend of retirement in the UK.

So if we look at this by the numbers, what do the statistics tell us about retirement and savings in the UK in a year of Brexit induced economic turmoil?

  • 59% of people in the UK are saving adequately (that’s at approx 12% of their income)

  • However, that means 41% of the UK adult population are not saving adequately for their retirement

  • In younger people, that number increases to 60% as only 40% of those aged 20-29 can be considered as saving adequately for their future

  • There’s an 11.8% increase in the number of people who say they are changing something

  • There’s a 4.8% increase in the average savings amounts of those people who are saving (that’s as a % of their income)

  • Alarmingly however, 17% of the UK population over the age of 30 are still not saving at all for their retirement

We need to briefly consider what ‘adequate’ savings means in terms of saving for our retirement, and Scottish Widows has this clearly defined as: ‘people over the age of 30 who are either saving at least 12% of their income or expect their main retirement income to come from a defined benefits scheme’. The 12% per annum saving as a percentage of your overall income relates to targets set by the Pensions Commission, as to what post retirement income would be needed to support a consistent quality of life.

59% of people in the UK saving adequately for their retirement is the highest rate since the reports began back in 2005, and shows a continuing upward trend since the introduction of workplace pensions and compulsory enrolment for all companies and staff. In fact, since that time the figure has jumped from 46% to 59%, making it the biggest influencing factor on retirement saving to date.

Of those 59% saving adequately for their retirement, slightly more than half of them are on private defined contribution schemes. Many of these are saving more than the 12% recommended amount, and in fact, most say they’re actually saving more than 15% of their current annual income, meaning they have every chance of maintaining their current standard of living throughout their retirement.

In the 15 years since they began preparing their annual retirement report, Scottish Widows have tracked an increase in the number of people saving adequately for their retirement: up from 6% to 44%, quite a remarkable increase and a sign of both an increased public awareness around saving for retirement, and also another clear indicator that the automatic enrolment for workplace pensions is having a beneficial effect within the UK.

In fact, the report clearly shows that there’s room to be optimistic about the fact that more people are saving more than ever before; whilst also noting that there’s still room for improvement in the numbers of people saving.

Automatic enrolment is clearly shown in this report as having been a positive agent of change within the area of retirement savings in the UK. More than 10 million people have, to date, been automatically enrolled into a workplace pension scheme. Overall, over 75% of employees within the UK are now enrolled into a pension scheme. 

There are, of course, warnings and challenges still to face. The current uncertain economic climate makes encouraging people to save for their retirement difficult, as right now people are focused purely on what may happen in the immediate future, and thus planning for anything long-term seems unimportant. The report also highlights that defined benefit schemes have closed, meaning that all new workplace (or otherwise) pensions are now defined contributions schemes. Meaning your pension will only accumulate whatever contributions you provide plus any potential investment returns. 

Pinpointed as the central problem facing people in retirement is the fact that most people are still not saving enough for their retirement. There is a significant majority not saving anything at all, and some others are saving but still falling well short of saving the amounts needed to have a good quality of life in their retirement years. These figures get worse the younger the person is, with overall people aged 20-29 showing that a massive 60% of them are not saving adequately for their retirement. In this instance, automatic enrolment will not be sufficient to make up this shortfall. 

This also points to the disparity in wages for young people and the fact that they do not have a high enough disposable income to both save for a house and save for retirement, meaning that people are prioritising for the immediate future and neglecting their long term future due to lower than average earnings.

As well as young people struggling to save for a house and thus obviously neglecting to save for their retirement, other major issues include the facts that 28% of people on a low income (£10k-£20k per annum) are not able to save at all, as they cannot afford to, and 41% of self-employed people overall also do not save at all. Again though, the obvious common factor is low earnings and income preventing people from planning sufficiently for major life events.

The report concludes by offering some thoughts on how we can help to remedy the situation. It suggests that pension contribution rates need to be raised from their current level of 8% up to 15% of people’s annual salary, and that some method must be found to offer self employed individuals the same opportunity to access pension schemes. It is also quite clear from reading the report that these factors will not, in themselves, completely solve the inherent problem for some people not being able to afford to save for retirement or for anything, they may also not change the attitudes of people who simply do not see or understand the reasons to save. A final comment in this report is that additional education and focus on people learning from a young age the value of saving and why and how to do it, and it seems very clear that that would be a forward step for the country.

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