Pension savings: Out of the woods?

Last week HM Revenue & Customs published some encouraging figures regarding the levels of pension savings in the UK. For a brief account of this issue please see here.

These figures have been interpreted by some as evidence of a newly improved savings culture, and the fact that savings rates have returned to near their pre-financial crisis levels is seen as (and indeed is) a welcome step forward. So are we over the worst – and now out of the woods – as far as retirement savings are concerned?

Unfortunately not. There are some sobering points that the reader should keep in mind when considering these new statistics:

  • The savings levels pre the financial crisis were already low – and indeed this was one of the key drivers for the introduction of Auto-Enrolment legislation to change this dynamic. It follows that returning to pre-financial crisis levels of savings is no significant improvement on where we were almost a decade ago.
  • The numbers saving in pensions have improved hugely as a result of Auto-Enrolment – and will grow further before the end of this exercise. It follows that the average level of pension contributions per saver has probably decreased rather than increased.
  • Following the introduction of Pension Freedoms last year, the early indications suggest that many modest levels of retirement savings are being used for financial needs other than providing a long-term retirement income. So more savers and pension savings does not necessarily mean a greater number of pensions in payment in the future.

The bottom line is that the UK still has a very long way to go in addressing the savings crisis. A rapidly aging – and under pensioned – workforce has the potential to be a genuine drag on the future of the entire economy. It is therefore important that all parties look to improve the savings culture wherever possible.

For employers the obvious starting points are higher pension contributions where possible, ensuring the selected pension scheme is robust and has good governance, good communications, and financial education in the workplace.

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Finally it would be remiss of us not to mention that any improvement in the savings culture is of course dependent on the continued support of HM Government in the form of incentives to save. The forthcoming Budget announcements on pension taxation will therefore be critical in sustaining this improvement in UK retirement planning.

For the full original article and other similar posts, please visit the Jelf Group blog.