Over a quarter (28%) of consumers are now more likely to start saving or save more into a pension following the reforms announced in the Budget, according to research by the National Association of Pension Funds (NAPF). Only 3% said they were less likely to save into a pension or stop saving completely.
The NAPF’s Spring Workplace Pensions Survey 2014 found young people1 to be the most likely (54%) group to save into a pension in the wake of the Budget. Lower income2 respondents also said they felt more attracted to pension saving (42%), which could imply that they have been incentivised by the option of having more flexible access to their pension savings.
The proposed reforms introduce greater flexibility around how people can access their pension savings at retirement and 61% of survey respondents said they feel capable of deciding what to do with their pension savings. People were generally fairly cautious about how they plan to utilise their pension pots, with 58% preferring to receive a regular income for life rather than risk their money running out. 24% per cent agreed they expect they will take all of their pension savings in cash because they have other sources of income and just under half (47%) were worried their pension would run out and they would need to rely on the state.
But, when asked, one in five (19%) agreed they would take the lump sum irrespective of whether they had other savings elsewhere, which suggests the number of pensioners choosing this route could be significantly higher than the Government anticipates, with subsequent ramifications on retirement income and state pension-reliance.
Commenting on the research, Joanne Segars, NAPF Chief Executive, said:
“It is encouraging that following the Budget proposals more than a quarter of people are more likely to save into a pension, with younger people and those from lower income households especially motivated to start saving. Interestingly, more than half of those surveyed had a prudent attitude towards retirement income. However, we do need to make sure people are fully aware of the consequences of taking all their pension savings in one go if they do not have any alternative sources of income.”
When asked how people would like to receive guidance or advice on what to do with their savings very few felt they would not need any help (14%). The most popular choice was face-to-face independent advice (29%), but respondents from lower income households were far less certain about whether they would use the service at all (39% of that group). Fewer than half (43%) were prepared to contribute towards the cost of independent advice ─ no respondent was prepared to pay more than £500 and only 3% were prepared to pay more than £200.
Just under a quarter (23%) thought they would need to save more than £150,000 to provide for a comfortable retirement. A pension pot of £150,000 would provide an individual with an annual income of roughly £9,0003 over a 25 year retirement (£16,000 a year once the single tier state pension has been added). Worryingly, more than a quarter (28%) said they have no idea how much they need to save.
Segars commented: “Greater flexibility brings greater responsibilities and the decisions people will need to make when they reach retirement are undoubtedly complex. The Government has said that people should receive free face-to-face guidance at the point of retirement, but it is not clear how this service will be delivered or who should be responsible for it.”
Pension schemes’ perspective ─ ‘Guidance Guarantee’
Shortly after the Budget the NAPF ran a separate member poll asking pension schemes specifically about the proposed ‘guidance guarantee’ service. More than three quarters (78%) of NAPF defined contribution (DC) fund members said they did not understand what the Government expects them to deliver. 57% of members also said they will struggle to deliver the ‘guidance guarantee’ ahead of the April 2015 deadline.
Commenting on the NAPF’s Guidance Guarantee poll, Segars said:
“This poll stresses the need for the Government to clarify the nature of the guidance guarantee service that our members will need to deliver. There is understandable confusion amongst schemes about what will be expected of them and with only 11 months to go before this service needs to be in place schemes need answers as a matter of urgency.”
Notes to editors
Young people: age 18-24.
Lower income: People with a combined household income of less than £14,000 a year
This calculation ─ assuming net interest 3% (inflation at 2% and investment growth at 5%) ─ equates to a yearly retirement income of £9,000 over a retirement spanning 24.5 years.
The NAPF is the leading voice of workplace pensions in the UK. We speak for 1,300 pension schemes with some 16 million members and assets of around £900 billion. NAPF members also include over 400 businesses providing essential services to the pensions sector.
NAPF Spring Workplace Pensions Survey 2014
The NAPF conducted its biannual Workplace Pensions Survey from 9 to 10 April 2014, receiving 2,051 responses. The research reports the opinions, attitudes and expectations of the 1,009 respondents who were in employment.
The data has been weighted to match the profile of respondents from earlier waves of the Workplace Pensions Survey to ensure comparability.
The spring survey continued to monitor general levels of confidence in pensions but focused primarily on respondents’ opinion about the pension reforms announced in the Budget 2014 to allow people to access their defined contribution (DC) pension savings as they wish from the point of retirement.
NAPF Delivering a ‘Guidance Guarantee’ survey
NAPF Delivering a ‘Guidance Guarantee’ online survey took place between 27 March and 7 April 2014. In total 87 defined contribution (DC) fund members took part - made up of 25% bundled trust-based, 55% unbundled trust-based, 20% contract-based schemes. Not all respondents answered every question.
Lucy Grubb, Head of Media and PR, NAPF, 020 7601 1726 or 07713 073023,
Eleanor Bennett, Press Officer, NAPF, 020 7601 1718 or 07825 171 446,