The vast majority of people have aspirations for a comfortable and leisurely retirement, but research has revealed these dreams will not be supported by current levels of financial planning or saving.
Almost 9 out of 10 (87 percent) UK workers dream of a retirement travelling, spending more time with family and starting new hobbies.
But a survey of around 5,000 UK workers, more than half of which were over 50, showed that just 15 percent of workers have set financial goals and budgets to achieve their dreams, with Gen X – aged 43 to 58 – particularly at risk of future disappointment.
Gen X at risk
This significant discrepancy between retirement dreams and the reality of financial preparedness is examined in a report titled ‘The At Retirement Reckoning’, from consultancy Barnett Waddingham.
Survey results showed that Gen X are especially at risk, with 53 percent confident they’ll have a comfortable retirement. But only 12 percent have identified clear financial goals and a budget for retirement. A third (33 percent) have ‘a rough idea’, 16 percent have no plans yet but plan to make some, while a worrying 13 percent have no plans and no intention to start planning.
This is in stark contrast to Gen X’s retirement wishes. Almost two-fifths (39 percent) want to travel abroad, 32 percent would like to start new hobbies, 19 percent plan to move to a new place, 9 percent want to redecorate, and 5 percent want to start their own business. Researchers said that the lack of financial planning among this demographic, so far, means they could be in for a “rude awakening”.
DB dreams, DC reality
“There is a chasm between expectations and reality when it comes to Brits thinking about their retirement. People – especially those in their 40s and 50s – are being driven to dream of a retirement filled with travel, pursuing hobbies, and even a life overseas,” said Paul Leandro, partner at Barnett Waddingham.
“But the life on offer may be a mirage; the aspirational lifestyle so readily on display by their parents and loved ones today is most likely funded by DB pensions – a luxury which won’t be there for the retirees of tomorrow. Without a notable shift in saving patterns, many will be in for a rude awakening. Aspirations with no plans are just pipe dreams.”
More than half of Gen X (51 percent) have a DC pension, although 30 percent do have a DB one. Researchers emphasised their concerns that 49 percent of this age group believe the state pension will be a critical retirement income.
Currently, the UK state pension provides £10,600 a year, maximum. Over reliance on this could leave many pensioners struggling to cover even the essentials.
Retirement timebomb
The consultancy said its research suggests that the UK is on the brink of a retirement crisis.
Without major changes in retirement planning and support, many individuals may find themselves unprepared for the retirement they would like.
Limited preparation for the widespread shift from DB ‘gold-plated’ pensions to a DC-dominated savings landscape, combined with a heavy reliance on the state pension and lack of financial planning, signals that the next generation of retirees might be forced to work longer, depend on family support, or accept a lower quality of life.
Mark Futcher, head of DC at Barnett Waddingham, called for a re-evaluation of our system to avoid a crisis.
Improve auto-enrolment
He said: “Sadly, there’s no silver bullet to the ticking pensions timebomb. But there are some changes that could make a real difference. Firstly, improve the auto-enrolment system, by widening who it includes and increasing minimum contributions. The aspiration should be to build a DC system that generates employees a comfortable retirement over the course of a career, without needing further wealth to survive.”
Futcher said: “At the other end of the career journey, we can build confidence by helping people visualise their income and lifestyle after employment. This is going to require significant innovation and a much more robust at-retirement framework, specifically working to increase confidence in older workers that a comfortable retirement is possible for them if they make the right financial decisions, and quickly.”
