Rising concerns over pensions expectations

Lyndsay Meikle is sensible about planning ahead when it comes to her pension | Supplied

This is one of the worrying statistics revealed in the 20th annual Retirement Report from Scottish Widows, which has led the firm to call for a number of measures from the UK Government and industry to tackle the pensions savings gap. Its recommendations include a policy proposal for the launch of a Lifetime Savings Commission that would agree a long-term roadmap to increase pension contributions.

The Scottish Widows report, based on research conducted online by YouGov, found that 31 per cent of Scots say they are not on course for what the Pensions and Lifetime Savings Association deems a “minimum retirement lifestyle” that covers all an individual’s needs with some money left over for fun and social occasions.

More than half of Scots told researchers that they expect the State Pension to eventually form a meaningful portion of their retirement income. But 12 per cent do not expect the State Pension to be available to them when they retire. The average age people in Scotland want to retire is 62, but they don’t expect to be able to do so until 64.

Scottish Widows says this highlights a worrying gap between people’s desired retirement age and the adequacy of pension savings.

Across the UK, the increase in those projected to suffer the poorest retirement outcomes has been driven by rises in the cost of living. For example, rents have gone up by 15 per cent, but the growth in wages is at an average of just 6.2 per cent, according to the report.

However, Pete Glancy, head of pensions policy at Scottish Widows, explains that the pensions savings gap does not impact everyone equally, pointing to increased polarisation between people who can expect a comfortable retirement and those who will find it very challenging.

Glancy says: “The people who face the poorest retirement outcomes tend to be those that aren’t in full-time, well-paid jobs. So, you could be in part-time work or have multiple jobs.

“The other big characteristic is if you’re renting. Renters tend to have higher costs today, and they’ll have higher costs in retirement. If you’re paying a large rent now, you can’t save as much for the future.”

He adds that some people’s wages in certain sectors have managed to keep up with the cost of living. And auto-enrolment in the UK into a company pension scheme means some have seen their retirement savings increasing if their salary is keeping up with or out-pacing inflation. But for those whose real wages are falling behind inflation, their retirement savings are also being adversely impacted.

The increasing cost of getting on the housing ladder means that many people are putting their money into saving for a deposit, rather than contributing towards a pension, warns Glancy.

While there is no quick fix to the pension savings gap, he says there are a number of steps that can be taken to address the situation: “The number-one thing we have to do is make sure that the number of homes available in the country is equal to the number of people looking for a home. At the moment, there’s a deficit, which is why house prices keep rising as fast as they are.

“Social housing also needs to be available. And we need to look at ways of helping people save for a deposit to get onto the housing ladder much earlier in life.

“We’re calling for a Lifetime Savings Commission. We believe it’s really important that people put money into a pension to save for retirement. But it’s equally important that people build up a deposit to get on the property ladder, so that they’re not renting or carrying big mortgages through retirement.

“And people also need money for a rainy day. So you’ve got those three interconnected savings challenges. We see that the government is setting up a Pensions Commission, but we think it should be a Lifetime Savings Commission.”

In terms of what the industry could do, Glancy says that pension schemes and pensions and investment firms should be getting everyone’s money to work as hard as possible to optimise returns. He believes financial advisers are generally doing a good job for their clients, but the entry point in terms of costs and level of assets means they only cater for a relatively small proportion of the population.

“We as an industry need to find a way of helping people make good decisions that are much much lower cost,” says Glancy.

The Scottish Widows report also identifies certain groups that are more impacted by the pension savings gap than others.

Glancy observes: “The people with the best retirement outcomes are those in well paid full-time, secure jobs. People in part-time jobs and insecure, intermittent forms of employment tend to have the poorest outcomes. What we find is that women, some ethnic groups – but not all – disabled people, and LGBTQ-plus communities are over-represented in those forms of employment that aren’t conducive to building up a good pension pot.

“It’s not that the pension system is discriminatory or letting them down; it’s the knock-on effect of them being over-represented in those more tenuous types of employment. It’s all about equalising job opportunities.”

Glancy adds that policy changes could also help. Currently, people are only auto-enrolled into a company pension scheme if they are earning at least £10,000 per annum.

“If someone has three part-time jobs, earning £8,000 in each of them, they will not be auto-enrolled.

“We think the £10,000 earnings trigger should go. And people on lower salaries should be able to opt out of employee contributions, but continue to get employer contributions,” says Glancy,

Concluding on what Scottish Widows would like to see from the new Labour Government, Glancy says: “I think they’re absolutely right that we need to go for growth in the economy. The economy has been flat since the financial crisis in 2008. A lot of people have been getting worse off, especially in recent years, and we have the cost of living crisis.

“The last government and the current government have flagged that they can’t raise any more money through taxation because the tax overheads are the highest we’ve ever had. They can’t borrow more money because of the national debt. So they’re seeing the only game in town is to use some of the trillions of pounds of UK pension money to fund growth.

“That would be a good thing if we end up seeing people in better jobs with higher wages, and more generous pension contributions from their employers. But this money doesn’t belong to the pension schemes or the pension companies, it belongs to the individuals who are the scheme members.

“What the government has to agree with the industry is a way of doing things that represents a win-win for the scheme members.”

Case study

Lyndsay Meikle (32), pictured, left her nursing role with the NHS to set up her own business, Aesteem Aesthetics, in Lanark last November and hasn’t looked back. But she realises this isn’t without risk when it comes to planning for retirement.

With her business in a good place, Lyndsay now plans to start saving into a pension again. She and her husband are well aware of the need to consider their pensions at an early stage, as well as providing for their young son.

She says: “I worked for the NHS for 12 years as a nurse and contributed to the pension scheme for the whole time. My contributions automatically increased when I moved up bands. I’ve always seen pensions as important... working with a lot of elderly people as a nurse made me really aware that, when the time comes, you need money to look after yourself.

“I couldn’t see myself working for the NHS for the next 30 or so years, so I decided to set up my own clinic, offering anti-wrinkle injections, dermal fillers, medical grade skincare and facials, and it’s the best decision I ever made.

“Now I’ve got the business on its feet, I plan to start paying into my own private pension and I’ll probably seek financial advice. My husband and I hope to be able to retire at the age of 55.”

On the worrying issue of some people not saving enough for retirement, as identified in the new report from Scottish Widows, Lyndsay says: “I think the importance of pensions is something that should be taught at school.

“I know people working at the NHS who opted out of the pension scheme, which I couldn’t understand – especially given the level of the employer contribution.”