Guy Opperman discusses the ‘priority’ for pension trustees
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New research from Aviva has highlighted a general lack of awareness surrounding pensions, as two in five people know neither the total value of their pensions nor how much they should be saving into their pension to create the retirement they aspire to.
Most people now don’t know how much their pension can generate for them as income in retirement.
Aviva has found just over two in five (42 percent) of people they asked didn’t know the value of their accumulated pension pots.
Meanwhile, 60 percent don’t know how much their pots would equate to in retirement income or annuity when they do retire.
This rises to 67 percent for 45-54 year olds.
Indeed, pensions have moved down the list of people’s priorities as fewer than a third, 28 percent, are saving at least 12 percent of their salary into their pension.
People should be aware of their pension and what it means in advance of retirement (Image: Getty)
Alastair McQueen, head of savings and retirement at Aviva, said: “The most positive action we can take today is to take control of our savings – consider where we want to get to in retirement and understand where we are starting from.
“We can then plan how to bridge the gap. It’s never too late to start saving and planning.”
It can be difficult to keep track of what money needs to go where and how much, so Aviva has recommended three rules of thumb to follow when saving into a pension.
– People should actively save for their retirement for at least 40 years before they plan to stop working
– 12 percent of a salary is a good amount to save into a pension each month – this can also include an employer’s contributions
– Aim for a target of ten times one’s salary in a pension pot by the time one reaches retirement
Currently, the overwhelming majority of people are doing none of these, so following this guideline may mean getting ahead of most others in retirement.
First-up, he suggested people check their state pension forecast on the Government website, to see how much one can expect to get via their state pension.
Making the most of tax boosts is another suggestion.
“For every £8 you save into a pension, the tax man adds at least another £2,” he explained.
“An extra £2 from the taxman for 40 years could boost the value of your pension by more than £10,000.”
What are some other suggestions?
“It is the law that every employer in the UK must provide their eligible staff with a workplace pension through auto-enrolment.
“They must contribute a minimum three percent into your pension. Try to maximise your contributions to maximise your employer’s boost.
“A generous contribution from your employer will make it a lot easier to hit the 12 percent target.”
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Although pensions are among people’s most important assets, they are more likely to know the value of their house, car or TV than their pension pot.
Mr McQueen recommends people who want to become more knowledgeable of their pension, “start by finding out how much you are likely to receive in a state pension, then spend some time reviewing your pension statements and find out the latest values”.
He added: “You may find you have several if you have moved jobs many times.
“Previous research from Aviva showed that, among retirees, those who began planning early were nearly twice as content with their financial situation than those who made no plans. Finding time to plan may be the best investment we can make.”
As far as taking action for people looking to plan their retirement, there are many ways people can help boost their pension pot right now, as Mr McQueen pointed out.
Aviva has devises three rules of thumb to help people plan ahead for retirement (Image: Getty)
“Saving for your retirement should not be a ‘set and forget’ activity. Use your annual statement to check that you’re on track for your retirement target.”
Budget and save: Every penny saved today can be used to fund your desired retirement tomorrow. And the more you save the sooner you should reach your target.
“The long-standing state pension ages of 60 for women and 65 for men were set in the 1940s.
“Life expectancy today means you could live for at least another 20 years past this age. Focus on your expected full life, not just your expected working life.”
“When it comes to retiring there are various pension providers willing to help.
“The retirement incomes they offer in return for your amassed pension pot may differ. Find the best deal for you by shopping around.”