Shocking number of Brits believe they will not have comfortable retirement

Less than half of Brits (48 percent) are confident they will have a "comfortable retirement", new research has found.

Fifty two percent of people with a defined contribution (DC) pension are confident they will have a comfortable retirement, according to a survey of 2,000 UK residents conducted by independent consultancy Barnett Waddingham.

Just over a third of Brits have a workplace (DC) pension, compared to about a quarter with a defined benefit (DB) - or ‘final salary’ - pension.

But with only 4 percent of DB pension schemes open to new members, Barnett Waddingham believe that within a decade, most workers will be in a DC scheme.

Consequently, it is a cause for concern that almost half of workers with a DC pot aren’t confident they’ll have a comfortable retirement.

Young savers are most confident about their retirement planning, at 71 percent of 18-24 year olds and 61 percent of 25-30s.

The least confident age group is 51-55, the cohort approaching pension freedoms age. Only 42 percent of this cohort are confident. After 55, confidence jumps back up to 50 percent or higher.

Older workers tend to expect to continue working for fewer years until retirement than their younger counterparts - but 25% of 18-24s still expect to retire within 15 years, an optimistic community perhaps driven by FIRE aspirations.

Only 16 percent of 25-30 year olds, 14 percent of 31-35s, and 8 percent of 35-40s can say the same.

Barnett Waddingham’s research reveals that confidence is relatively static for people with more than 25 years of work ahead of them pre-retirement, at which point confidence starts to rise in older age groups.

By the point of 5-10 years of work left, 58 percent of people are confident, rising to 71 percent of those with 3-4 years of work ahead. This dips to 65 percent of 1-2 year planners, and rises again to 73 percent of people retiring within the year.

Of the 52 percent of retirement-confident workers, most confidence is driven by having other investments, beyond their DC pot. Of those 29 percent have other investments and 28 percent own a property outright.

Men are more likely to have other investments than women (33 percent vs 25 percent), and to own their property outright so are able to keep retirement costs low (32 percent vs 25 percent).

Only 8 percent of employees are confident about retirement because they have a DB pension which will cover the bulk of their needs - this rises to almost one in five 51-55s (18%) and 61-65s (19 percent).

For the unconfident, most believe they simply don't have enough saved into their pension pots for their age (35% of retirement-unconfident workers).

This rises to 45 percent of 51-55s, and 47 percent of 61-65s, 19 percent haven’t saved enough to cover both them and their spouse, while a third (32 percent) don’t believe they earn enough to save for a comfortable retirement. 29 percent don’t have any other savings or investments beyond their DC pot.

Mark Futcher, Partner and Head of DC Pensions at Barnett Waddingham, said: “In a rare glimmer of good news, people are currently more confident about retirement the closer they are to it, meaning something is going right. But there are two key areas for concern.

"Firstly, a third of people planning to retire in a couple of years are going into that period of their life without confidence that they’ll be able to live comfortably. And most people who are confident are such because of other wealth, property, or private and DB pensions. This is not much use to most young workers, who tend to have low savings, lower prospects of buying a house, and solely DC workplace schemes.

“There’s two major solutions that policy-makers must pursue. The first is to improve the auto-enrolment system, by widening who it includes and increasing minimum contributions - including auto-escalation of contributions with pay rises and after career breaks. The aspiration should be to build a DC system that generates employees a comfortable retirement, without needing further wealth to survive.

“The second is to hone in on the cohort approaching retirement, and work to ensure that people are able to confidently visualise their income and lifestyle after employment, This is going to require significant innovation and a much more robust at-retirement framework, specifically working to increase confidence in older workers that a comfortable retirement is possible for them.

"With political upheaval likely in the months ahead, it’s critical that the industry pushes for consistency of focus - long-term pensions cannot be a short-term political football”

Mark Futcher shares three things to consider to improve pension confidence:

While the burden should not and cannot fall exclusively to individuals, there are some things everyone can do to help improve pension confidence:

1. Do something: Pay in more – especially after career breaks

Increasing auto-enrolment contributions is one of the most effective ways to boost your confidence about your pension – and the sooner you do it, the easier it is to build a substantial retirement fund. Check that you receive the maximum contribution from your employer, particularly if they use a tiered contribution structure.

Additionally, using pay rises as a prompt to increase contributions can enhance your confidence in securing a comfortable retirement. If you increase your contribution at every pay rise, you won’t notice the impact on the amount you take home each month – after all, you can’t miss what you never had!

2. Learn something: Empower pension knowledge through education

Knowledge is power. Only when you know how much is in your pension, how much should be there, and what your financial prospects look like can you have true confidence.

Not everyone understands the benefits of tax-efficient saving vehicles and allowances - in fact, 28 percent of defined contribution (DC) savers have never logged in to check their pension online. If you’re struggling to understand anything or track down your pension, access the Government’s Money Helper or speak to an adviser.

3. Fight for something: policy adjustments to empower confidence at retirement

As we approach a general election, it’s time for a shake-up to the pensions system. Policy makers can help encourage confidence by introducing higher default contribution levels for when employees join the pension scheme, ensuring they automatically save a substantial amount and only need to opt-out actively rather than having to proactively increase contributions themselves.

Additionally, it could entail implementing auto-escalation for employees to gradually increase contributions regularly. Even a small annual increase in contributions, such as just 1 percent of pay, can make a significant difference in boosting retirement outcomes and encourage people to feel more confident about their future as a result. Writing to your MP and calling for change can impact not just your own pension, but that of many generations to come.