More and more UK adults are adopting a gradual approach to retirement. In this blog, we will analyse findings from a 2022 study conducted by Smart Pension to gain an insight into changing attitudes towards retirement in the UK.
Thinking About Retirement
Since the introduction of auto-enrolment in October 2012, many workers automatically save into a pension without consciously having to make the decision to do so. This has helped to get a lot more people saving for retirement.
However, it’s still important for us to actively think about our pension and to try to maximise contributions where possible, as our pension pot will need to last us a significant length of time.
Lack of Understanding Surrounding Retirement Options
According to Smart Pension’s 2022 study, 29% of UK adults don’t have a clear understanding of the options available to them in retirement.
This figure is down from 39% in their 2021 survey, reflecting positive change in terms of how we understand our retirement options.
However, there is still a significant gap in our nation’s pension knowledge that needs to be filled.
Retirement as a Gradual Process
Smart Pension also found that retirement is now seen as more of a gradual thing, with 47% of UK respondents seeing retirement as a transition rather than a one-off event.
This makes sense, given that going from working, especially under full-time hours, to not working at all, can be an enormous lifestyle change that could seem jarring. Therefore, more and more people are reducing their working hours as a way to gradually phase in retirement.
Concerns in Retirement
The above image illustrates Smart Pension’s findings on respondents concerns about retirement.
In 2021, the biggest concern of UK respondents was having to limit their lifestyle in retirement, whereas in 2022, being able to afford daily living costs was the biggest concern. This demonstrates the impact that the continued cost-of-living crisis is having on the UK population.
Another interesting point in these findings is that in 2021, being able to afford healthcare costs in retirement was at the bottom of the list of concerns at number five, whereas in 2022, this concern leapt up to third place.
Given that we are a nation with a free national healthcare system, this is somewhat troubling, as it may link to our increasing uncertainty surrounding the future of the NHS, with many being forced to seek private treatment due to lengthy waiting times.
Supplementing Income
18% of respondents plan to supplement their pension with continued employment. Perhaps one reason behind this comes down to that earlier finding, where many are worried that they won’t have enough income in retirement to cover day-to-day living costs.
We can access most private pensions from age 55, meaning that there isn’t really a set retirement age; you can keep working for as long as you like whilst also drawing on your pension.
However, if you do continue to work whilst drawing a pension, you will lose more of your pension in tax. This is because income from your pension is treated the same as any other income, meaning that once you have used up your personal allowance, the rest of your income will be taxed in the relevant band.
The personal allowance is £12,570, so if you work whilst drawing from your pension, and the total income is below this level, you will not be taxed.
It’s worth noting here that you can’t start claiming your State Pension until you reach the State Pension age.
If you are considering phasing your retirement but aren’t sure of the best way to take your pension, or if you aren’t completely sure about the different retirement options available to you, you may wish to talk to a financial adviser. We offer confidential, personalised pensions advice if you wish to contact us at office@redstarwealth.co.uk or by ringing 01253 486346.
by Red Star Wealth
Some of the figures from Now: Pensions’ Gender Pensions Gap Report 2022 show a shocking gender disparity in retirement incomes. There is currently a £136,800 gap between men and women’s pensions, giving a gender pension gap of an enormous 33.5%. This essentially means that women would have to work an extra 18 years in full-time employment to save the same pension level as a working man. Join us while we look through the reasons why this gap exists and how you can help build up your pension.
Childcare Responsibilities
Many women take career breaks for caring responsibilities, during which time they perform no paid work. Women also make up the biggest proportion of part time workers in the UK, partly because they take on more childcare responsibilities. The 2022 Gender Pensions Gap Report estimated that 42% of women in the UK have caring responsibilities, highlighting just how big an impact this can have on women’s working lives.
Given that raising children is unpaid work, women are often unable to make as high pension contributions. Career breaks also mean less opportunities for career progression through promotions, so women often miss out on pay rises as a result, so have lower incomes to make pension contributions from.
The Glass Ceiling
Amongst FTSE 100 companies, only 8% of CEOs are female, highlighting the lack of women in leadership roles.
Part of this is because there are still underlying notions of women being less capable then men. The Reykjavik Index for Leadership measures the extent to which societies view men and women as equal in terms of their suitability for leadership roles.
A score of 100 represents complete agreement that men and women are equally suited to leadership. The 2021/2022 index for the G20+ saw the UK with a score of 82. Whilst this is above the G20 average of 68, it still means that there is gender inequality. Why is it not 100? Why are women still not seen as equally capable of men?
Auto-Enrolment Pensions
Auto-enrolment was introduced in 2012, making employers legally obliged to offer workplace pensions for employers who meet the eligibility criteria. Part of this criteria is earning £10,000 or above from a single job role (not as a combined income from multiple jobs).
This is a great scheme… but only for those with traditional working patterns. If you are self-employed, take a career break or work multiple part time jobs, you may feel to meet the eligibility criteria. In fact, 23% of employed women fail to meet the criteria, as they are more likely to fall into all of these categories.
This means that many women aren’t automatically paying into a pension, and instead have to organise it themselves if they wish to join a pension scheme. And if they don’t, their pension pot simply won’t grow.
What could the Government do?
Reduce or remove the £10,000 auto-enrolment trigger so that more working women start automatically contributing to a pension fund
Make pension sharing more common in divorce
Make childcare more affordable so that more women are able to return to work after maternity leave
What can you do?
Try to pay in the maximum amount into your pension each month that you can reasonably afford. Just because the current auto-enrolment minimum is 5% from you and 3% from your employer, does not mean you can’t contribute more than this. If you get a pay rise or your expenditures go down, it’s always good to consider putting a bit more away for your retirement.
The earlier the better. The longer you make pension contributions for, the more you save. Pensions also work on a system of compound interest… the more you have, the faster it grows.
Auto-enrolment isn’t the only way to put money away for retirement. If you don’t fit the eligibility criteria it can be worth having a look into setting up a personal pension to see if it’s for you.
Try to keep up contributions even when you have a family, even if you are putting away less than before.
Keep an eye on your pensions pot. Check it like you would your bank balance to keep track of where you’re at so it’s easier to see if you need to start increasing contributions.
If you take a career break and stop making contributions, try to contribute a higher percentage of your income when you return to bridge the gap.
Try to share caring responsibilities more equally amongst you and your partner, so that you can both focus on paid work to the same extent.
