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Recession to weigh on retirement savings ‘for decades’

Almost half of UK workers stopped or reduced their retirement savings during the recession, which will have an impact “felt for many decades to come”, an HSBC report warns.

The pension trends survey of 2,000 of people reveals 31 per cent of UK workers stopped or reduced saving for retirement in cash deposit, 25 per cent in investments and 25 per cent in personal pension schemes.

In addition, 59 per cent say they will not have enough money to live on in retirement and one in ten do not think they will ever be able to retire completely. Retired people say at least £35,000 a year is needed to fund a comfortable retirement.

Two in five UK workers expect their standard of living to fall when they retire, compared to a worldwide average of just 23 per cent, the reports says.

Despite the auto-enrolment reforms, a significant amount of working age people are not confident workplace pensions will give them an adequate income.

Some 80 per cent of retired people think an employer pension scheme is a good way to provide a retirement income, compared to just 65 per cent of working age people. About 60 per cent of both groups are confident buy to let property will support their retirement, while less than a third of people think annuities will help generate retirement income.

Around half of retirees who did not save enough for retirement say they only realised this once they had retired. and it was too late to save any more.

HSBC head of UK wealth Caroline Connellan says: ”Our research shows that the financial hangover from the economic downturn is impacting what many are saving for retirement.

“Today’s workers have greater responsibility to think carefully about how much they’ll need for a comfortable retirement. This can sometimes involve quite complex decisions on the various savings and investment options and most people will benefit from financial advice.

“The Budget changes, which create greater freedom and choice on pensions from April 2015, have resulted in more interest from our customers to review their retirement plans. If there’s one action we should all consider, it’s to start saving as early as possible: even the smallest amounts saved now can make the likelihood of a comfortable retirement all the more real.”

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. The biggest problem, as borne out by the survey, is that many of those already in retirement were members of Final Salary schemes, the others were fortunate to have higher annuity rates, therefore needing less capital.

    The reality is that the workforce today, Public Sector and the few remaining Defined Benefits schemes members excluded, will have to make sacrifices to achieve a reasonable retirement fund, which they are either not able or willing to do. Auto enrolment is a sticking plaster, and whilst any initiative to save for retirement is to be commended, 8% of band earnings will not be anywhere near enough for many people.

    Market volatility and economic downturns only compound the problem as these newer investors see little value in saving for the future. Better education will help, and recent Budget changes may be seen as a further stimulus.

  2. The gap between a £35,000 comfortable retirement and reality for the majority of people is huge. Assuming this is for a couple, even accounting for full single tier state pension each and a bit of DB, most would be looking at ‘finding’ another £20,000p.a or more to get anywhere near this. A fund north of £250k would be required, which is a bit higher than the average £30-40k you find on average now.

    When people reduced their contributions during the recession, I would be interested to understand what else they reduced, like entertainment, lifestyle, etc?

  3. The sad thing, that all too many people still don’t appreciate, is that unless you’ve been unfortunate enough to lose your job or at least suffer severely reduced earnings during an economic downturn and thus a decline in investment markets, that’s THE VERY TIME that it’s most important to maintain monthly contributions to your chosen retirement plan, be it a PP, an ISA or whatever. The pay off comes when markets recover, as they always do, sooner or later.

    If there are three things about which we, as an industry, need to educate investors, they’re:-

    1. when markets are down, you’re buying cheap (so keep going),

    2. investments likely to give a better return than just cash will (not may or can, WILL from time to time fall in value ~ they don’t just go up and up from day one, as if they’re turbo-charged cash deposits and

    3. Real investments are a long not a short term proposition (a decent sized investment portfolio isn’t built in just a couple of years).

    Nearly 30 years of regulation and still we’ve not managed to get across these fundamental messages. So what’s it all been for?

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