A new report from life insurance company Aegon found that Britons have been saving significantly more in their pensions in the two years since the UK adopted auto-enrolment initiative pension reforms known as the “pension freedoms.”
According to the report, Britons have, on average, £50,000 ($63,000) saved in pensions, up from £29,000 in April 2015 when the pension reforms kicked in.
“There’s been nothing gradual about the pace of change,” said the report. “More than 7 million people are now a member of a workplace pension as a result of the government’s auto-enrolment initiative.”
The rules provided those with defined contribution pension plans looking for greater flexibility four options:
- Full flexi-access drawdown: take all tax-free cash and designate the remaining funds as a drawdown taxable ‘income’ pot for flexible, unlimited access.
- Phased flexi-access drawdown: members take some tax-free cash, designate the attaching ‘income’ pot for flexible unlimited access (taxable), and leave the remaining funds as a savings pot.
- Full withdrawal – no drawdown: withdraw the entire amount at once as a capital lump sum, with 25% tax-free and the remainder subject to income tax at the individual’s marginal rate.
- Phased withdrawal – no drawdown: allows the pension provider to pay the policyholder a one-time lump sum without the need to officially convert to a drawdown plan; 25% of this payment will be tax free, and the balance is taxed at the marginal rate.
However, not all the findings from the report were encouraging.
“People are becoming increasingly aware of the need to pay attention to their retirement savings and overall engagement is improving at a promising pace,” said the report. “But there is still a long way to go before everyone can say they are financially on track for the retirement they aspire to.”
According to the report’s findings, slightly more than half of the population (50.5%) would like to see more clarity on how much state pension they are due to receive. And 37.4% said they simply don’t understand the way pension tax relief works.
“In the new pension landscape, the responsibility for saving adequately is personal, but many believe that the government and the industry should be doing more to support them,” said the report.
Additionlly, just under 12% of people say they will likely stop working as soon as they reach state pension age, while another 8.5% say they hope to have already stopped working by the time they reach 65. That translates to just one in five UK residents who expect to be financially able to retire before or at age 65. Meanwhile, half of the respondents said they are likely to continue working after they reach pension age: 24.5% expect to stay in work full-time past 65, while another 25.3% anticipate they will continue working on a part-time basis.
Aegon also found a significant gender gap between men and women saving for their pensions. The report fount that men saved an average of £73,568, compared to only £24,869 for women, and men are saving £272 a month compared to £119 for women.
“November 2018 will see the controversial increase in women’s state pension
age to 65, in line with men,” said the report. “It’s a significant stretch for women, many of whom now face half a decade longer to wait for their state pension to kick in. And further increases to age 66 and then 67 are already scheduled.”