State Pension Fears Mean Longer Working Lives for Many

Numurous pension changes by Government have left savers unsure of their financial future from lifetime allowances to State Pension provision

Emma Wall 14 July, 2016 | 12:23AM
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Despite Minister Ros Altmann’s vocal commitment to the State Pension, the vast majority of workers in Britain believe that the State Pension will be less generous when they retire – or will have disappeared altogether.

We are facing a great number of unknowns with a new Prime Minister and a new Chancellor

According to research by Aegon, just a third of the UK population believe that the state pension will be as generous when they retire – and the blame for the lack of trust is laid firmly at the Government’s door.

Seventy per cent of people surveyed said they did not trust the current Government to make fair decisions when it came to pension provision.

Kate Smith, Head of Pensions at Aegon said: “Against a backdrop of almost continuous reform, it’s perhaps not surprising that just a third of people believe the state pension will be as generous when they come to retire.

“In an ageing society, the state pension is always going to be an expensive benefit to maintain, but it’s one we hope future governments will continue to support given that it underpins the majority of people’s retirement incomes.”

New data released this week by HSBC shows that Britons now expect to have to save for 30 years before they can retire, and work at least four years longer than those already in retirement.

In April, the new flat-rate State Pension was introduced. It was billed as a cure-all for the complicated top-up system; a fair, generous replacement for the existing two-tier State Pension. But according to the Work and Pensions Committee only 13% of those people reaching state pension age in the next 12 months will receive the full flat rate of £155.65 a week.

Pensioners with fewer than 10 qualifying years of National Insurance Contributions (NICs) have seen their weekly State Pension income fall in comparison with the previous system, as have those who relied on spousal contributions.

In April, Pensions Minister Ros Altmann dismissed concerns that the State Pension will be scrapped, saying that while reform was essential she firmly believed “there will always be a State Pension and there should always be a State Pension”.

Andy James, head of retirement planning for Towey expects the State Pension to be protected for now – as it was too valuable a political tool.

“We are facing a great number of unknowns with a new Prime Minister and a new Chancellor, but I do not think they will cut the State Pension – at least for those aged over 50. After all it is retired people who vote,” he said.

“Tinkering” Leads to Lack of Trust

The Financial Conduct Authority has today published its Retirement Outcomes Review, introducing terms of reference so that consumers can accurately compare annuities when looking to secure a retirement income.

“Engaged pension investors are better placed to navigate retirement. Those shopping around to buy an annuity receive higher incomes, whilst those opting to self-manage via income drawdown are taking sustainable levels of income and investing wisely. It is great that this work by the FCA will ultimately lead to a jump in the number engaging with their retirement,” said Nathan Long, senior pension analyst at Hargreaves Lansdown.

Greater financial literacy around pension provision was an admirable aim, added James – but it was understandable if consumers mistrusted the government and the industry as the rules seemed to be constantly changing.

“The government can’t seem to stop tinkering with pensions – for 25 years there were no changes, but the last 10 years have seen adjustments to allowances, the State Pension and workplace schemes. People will be wary about putting money away for fear that the rules will change again,” he said.

“We have to attempt to educate people on the need to save for the long term, in particular the power of pound cost averaging. That fist pound you invest is the one that will work hardest for you.”   

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Emma Wall  is former Senior International Editor for Morningstar