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Chris Curry: State pension knowledge too low for informed decisions

Chris-Curry-700x450.pngA lot of recent work in the pensions world has been aimed at helping individuals engage with retirement saving: to better understand what they have already, how much they might need and what they will have to save to reach their target levels.

The pensions dashboard project and the Pensions and Lifetime Savings Association’s work on national retirement income targets are both big initiatives aiming to build on the initial success of automatic enrolment.

But as well as understanding their workplace pensions people must also know how much income they will receive from the state pension.

There have been many changes to the system in recent years, with state pension age rising for both men and women. The basic state pension and additional state pension have also recently been replaced with the new state pension, which changes the level people will accrue in future.

Is the state pension clients’ biggest retirement asset?

There are transitional arrangements in place for those who have entitlements under both the old and the new system and who reached state pension age after April 2016.

It is often assumed that, since the recent introduction of the new state pension, the system is now simple and well understood.

However, we have recently used the NatCen Panel (a probability based research panel representative of the UK population) to question around 6,000 people on their understanding of it, and the findings are not as straightforward as the assumptions.

Self-assessed knowledge is low. Just 12 per cent of people believe
they have a good knowledge of state pensions, with a further 30 per cent reporting a reasonable, general knowledge but a lack of understanding of details. A whopping 58 per cent report patchy or no knowledge of state pensions.

Only around 26 per cent of people expect to receive their state pension at their actual state pension age (as in current legislation). Forty per cent expect their state pension age to be lower than it actually is and 34 per cent expect it to be higher.

Paul Lewis: Can we afford the state pension?

These findings are important when considering future policy surrounding engagement.

One obvious example of something that will help would be the pensions dashboard including easy-to-understand information about state pension entitlement as well as private pensions.

Without this, individuals will struggle to be able to plan properly for retirement. Our research also raised some broader questions about the approach to pensions policy overall.

The majority of people believe that responsibility for funding retirement lies with the government or employers rather than themselves. Thirty-four per cent believe the government should hold the main responsibility for funding overall retirement income (state and private pension), 29 per cent believe it should lie with employers and another 29 per cent believe it should lie with the individual.

When we consider in future where extra pension contributions should come from, it might be worth bearing these findings in mind.

Chris Curry is director of the Pensions Policy Institute

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Comments

There are 2 comments at the moment, we would love to hear your opinion too.

  1. John Armstrong 16th June 2018 at 8:56 am

    The situation is not helped by the Government’s own rhetoric on the subject, using phrases such as “those retiring after April 2016 will receive the new, more generous flat rate State Pension, currently £164.35 per week”. Given that I regularly see clients whose State Pension is comfortably more than £200 per week, indeed I saw a client this week who receives £213.84 per week State Pension, made up of basic and SERPS, then it is hardly surprising confusion reigns!

    The legacy of steep cuts to State Pension pay-outs in terms of later eligibility and less generous amounts will be far reaching throughout the economy in years to come. Necessary, yes, without question, due to increased longevity and well documented changes in demographics, but let’s not pretend that future pensioners will not be poorer.

  2. Here in Australia we help people who have worked in the UK achieve some UK state pension income to help boost their retirement income.

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