Perfect storm

Major long-term ramifications for financial health and wellbeing.

A perfect storm of global and domestic factors has contributed to spiralling inflation in the UK, triggering a cost of living crisis. This is pushing up the prices of food, fuel and housing. This crisis is by far the top concern for UK consumers: 58% are very worried about it, rising to 69% of women, according to research[1].

Three-quarters of those aged 50 and over are also worried about how the cost of living will impact their retirement with one in two (53%) fearing that they won’t have enough income to survive financially when they stop working[2].

Weather the cost of living crisis

Interestingly, only 42% of people are very worried about inflation specifically, suggesting a lack of understanding about what’s driving the crisis. After two decades in a low inflation and interest rate environment, an abrupt change in the economic climate has prompted many UK households to relook at their personal finances so they can weather the cost of living crisis.

Everyday luxuries like subscription services and holidays have been first to go as we tighten our belts. But faced with double digit spikes to fuel and everyday essentials, many feel more radical changes to household finances will be required to steady the ship.

Not being able to save enough

Worryingly, the research suggests that families are increasingly prepared to pause savings and investments, and some would even cut back on pensions contributions or dip into their nest eggs, actions which could have major long-term ramifications for their financial health and wellbeing.

The key findings are that more than one in five (22%) people across the UK are having sleepless nights worrying about the economic environment. Their top concerns are 58% cost of living, 42% rising inflation and 29% not being able to save enough towards retirement.
Most people are not prepared for the squeeze – 55% say they are not confident their finances will hold up against the rising cost of living.

Making or considering financial changes

53% are concerned about not being able to save for their emergency fund given the current economic environment, and 54% are worried they’ll use up all of their emergency savings to cover the cost of living rise. 59% of people are concerned they’ll need to work for longer as a result of today’s cost of living.

People are making or considering financial changes which will have long-term ramifications. 11% of consumers have given up investing, and a further 17% plan to do so. Asked more broadly about their finances, more than half of adults (55%) say they are not confident their finances will hold up against the rising cost of living.

Least confident age group

Of this, 34% say they are not very confident and 21% say they are not at all confident. This surges higher among women, with 63% of women saying they’re not confident compared with 47% of men who say the same.

Delving into the detail, those aged 45-54 are the least confident age group around the strength of their finances – 63% are not confident. This is closely followed by 35-44-year-olds (62%) and then 25-34-year-olds (59%) who say the same.

Source data:
[1] Research was carried out by Censuswide for Charles Stanley among a UK representative sample of 2,086 UK adults. The survey was completed between 09/06/2022 and 13/06/2022.
[2] Conducted by Perspectus Global – 1,000 UK based Britons aged 50 and over was commissioned by Unbiased during April 2022.

Feeling the pinch

Women more vulnerable to cost-of-living crisis.

Throughout their lives, women face a number of challenges that can place them at a financial disadvantage compared to their male counterparts. This can include inequality of pay at work, taking career breaks or taking part-time positions due to an expectation they will take on greater responsibility for family commitments.

This often leaves them less financially resilient and in the context of the cost of living crisis, where everyone is feeling the pinch, it places additional pressure on their financial wellbeing. This can have an impact in the here and now but can also contribute to inequalities in the long term, such as with pension savings.

Financial resilience overestimation

Working women are significantly closer to the breadline if they lose their income and more vulnerable to the cost of living crisis, according to new research[1]. On average, working women are only 14 days away from the breadline in the event they lose their income. This is significantly less than the average working man, who would be able to meet their household costs for 28 days. The household average stands at 19 days.

While the average working woman has comparable debts to men (£558 vs. £665), they have significantly less set aside in all their savings and investments (£1,801 vs. £3,214). With a daily expenditure of £90, calculations show that women would only be able to fund their household spending for two weeks with no income. On average, women overestimate their financial resilience, assuming they are 60 days from the breadline; this is compared to men who assume they have 90 days.

Reducing essential spending

Women are considerably more likely to view the cost of living crisis as a ‘constant source of worry’ (78% vs 68% of men) and therefore take action to address it. Women are much more likely to be cutting back on luxuries (86% vs 76% of men) and reducing essential spending where possible (72% vs 65% of men).

On average, working women surveyed have a lower median annual personal income (£23,245 vs. £31,070), likely due to a number of reasons. Statistics show that in 2021, the gender pay gap among full-time employees was 7.9%, up from 7.0% in 2020[2], signalling that women in full-time employment continue to get paid less than their male co-workers.

Emphasis on budgeting

Similarly, working women are significantly more likely to be in part-time employment compared to men (31% vs 11% of men surveyed), with the expectation of domestic and caring responsibilities often placed on women’s shoulders.

While the cost of living crisis has placed an emphasis on budgeting and financial planning, women’s financial wellbeing still faces considerable challenges in the long term. Research from earlier last year showed that, on average, women’s pensions are half the size of men’s (£12,000 versus £26,000)[3].

Source data:
[1] Online survey among 5,021 UK consumers using Savanta’s proprietary consumer panel between the 28th June and 5th July 2022. The survey covered employed & self-employed consumers aged 18 to 65 only, approximately nationally representative but ensuring a minimum sample in every region of the country.
This extrapolates to approximately 31.228 million adults in the UK. Results were re-weighted to represent the UK population in terms of age/gender, region & employment status. All averages that are shown are median values. References to income refer to household income.
Basic expenses are housing costs, loans/ credit card repayments, utility bills and food. When savings and investments are referred to it includes both personal and household.
Legal & General’s Deadline to Breadline report, explores financial resilience, security and engagement of working households across the UK. The report contains key ‘conversation starters’ for advisers to help with tricky questions during this difficult time for clients.
[2] Office for National Statistics (ONS), Gender pay gap in the UK: 2021, 26 October 2021
[3] Legal & General analysis of based LGIM’s proprietary data on c4.5 million defined contribution members as at 1 April 2022 but does not take into account any other pension provision the customers may have elsewhere.

Tracing old and lost pensions

Nearly half of pension holders have lost track of some of their pension pots.

The lost pensions challenge in the UK has grown significantly in recent years, further exacerbated by the pandemic, which resulted in a large proportion of people moving jobs. A recent Pension Policy Institute research briefing calculated the total value of lost pension pots has grown to £26.6 billion in 2022[1].

If you’ve worked for several employers throughout your career, you might have accumulated multiple pension plans. You may also have set up personal pensions, especially if you’ve been self-employed or a contractor at some point.

Administrative burden

Owning multiple pensions can be an administrative burden, but it could also be costing you financially – whether that’s through excessive fees or poor investment performance. Today, nearly half (46%) of UK pension holders have lost track of some of their pension pots, according to new research[2].

This means that – against the backdrop of the rising cost of living – millions of people across the country could right now be missing out on pension pots that are sat with their previous employers.

Retirement plans

Nowadays, the average UK employee has 11 jobs over their lifetime, the research highlights. So while it’s understandable that savers may forget how many pension pots they’ve accrued over the years, they currently risk incurring unnecessary management fees – or even missing out on those savings altogether – at a time when higher inflation threatens to spoil their retirement plans.

Moreover, savers who have kept track of their pension pots will be in a much better position to make informed retirement decisions when they get older. 13% of people did not know how to track down a pension pot from their previous job. And although savers currently have the option of combining their pensions, 16% didn’t know how to go about tracing their lost money.

Multiple pensions

This lack of knowledge is particularly worrying. Having multiple pensions with different employers or pension providers can create an unnecessary headache for retirees, and this will come at a time in life when things should ideally be less challenging for them.

To complicate matters even further, the number of workers with small pension pots of under £1,000 has skyrocketed in recent years. The Pensions Policy Institute (PPI) has predicted that the problem is only going to get worse, with the number of small pots set to triple to 27 million by 2035.

Better retirement

The recent PPI research on lost pension pots also indicated that the speed at which pension pots were being classified as lost was increasing, with an extra 1.2 million pots having been ‘lost’ in the four-year period between 2018 and 2022. That’s a 75% increase in lost pots in just four years.

While consolidation will not be the best option for all pots, for some people consolidating their pensions into one pot would undoubtedly bring them much closer to their money, increasing their sense of ownership and control, and potentially setting them up for a better retirement.

Source data:
[1] Source: https://www.pensionspolicyinstitute.org.uk/sponsor-research/research-reports/2022/2022-10-27-briefing-note-134-lost-pensions-2022-what-s-the-scale-and-impact/
[2] https://adviser.scottishwidows.co.uk/assets/literature/docs/2022-10-pension-pots.pdf

Time to get your retirement plans in motion?

Three in five Britons feel stressed about later life planning.

It’s only natural, in a world where most people are worried about things that are beyond their control – the rising cost of living, increasing inflation and interest rates that haven’t been seen for years – that you may also feel out of your depth when it comes to things like pensions and later life preparations.

When it comes to later life planning, more than three in five people (61%) feel stressed when they think about their retirement. This figure rises to almost three-quarters (74%) of 25–34-year-olds, new research has highlighted[1].

Unsurprisingly, given the current economic climate, all age groups, with the exception of the over-55s, admit to being stressed about: whether or not they will have enough money set aside at retirement to do all the things they want to do (71%); how long their pension pot will last (65%); whether or not they are paying enough into their pension pot (59%); and how early they need to start paying into a pension (49%).

In the majority of cases, the most anxious across all age groups are the 25–34-year-olds, with the starkest contrasts in numbers being around how early they need to start paying into a pension (70% vs 49% nat.avg), whether or not they should have more than one pension pot (70% vs 50%) or if they are paying enough into their pension savings (77% vs 59%).

However, with a little planning and simple rules of thumb, you can feel more in control of your savings and know if you are on track for the lifestyle you want in your retirement.

Give you greater control over when you retire and with how much money

How long? Aim to save for your retirement at least 40 years before you want to retire. The later you leave it, the more you will need to save each month to reach your target.

How much? Try to save at least 12.5% of your salary towards your pension every month – this may seem challenging at the moment but something to aim for. And remember, this can include money from you, your employer and the government.

Final pot size? Aim to amass a pension pot of at least ten times your salary by the time you retire.

Tax relief: Take advantage of the tax relief offered by the government to boost your savings. When saving into a pension, for every £8 you save, the taxman adds an extra £2.

Employer contributions: Every employer in the UK must provide eligible employees with a workplace pension. Not only that, but they must contribute to this pension. Some employers will contribute more if you save more, helping towards the 12.5% target.

Invest wisely: By investing your money, in a pension or elsewhere, your money can grow through to your target retirement date.

Investment risk: The value of investments can go down as well as up and you may get back less than has been invested but remember that investing in a pension is a long-term investment and over time you could reap greater rewards.

Keep checking: Saving for your retirement should not be a ‘set and forget’ activity. Use your annual pension statement to check if you are on track for your retirement target.

Reframe your expectations: Life expectancy in retirement could be 20 years or more, so bear in mind how long your money may need to last.

Use the pension freedoms: From 2015, the pension freedoms allow more flexibility in retirement planning, but take time to understand the options before acting.

Search for lost pensions: There are close to 3m lost pensions in the UK where pension providers and clients have lost touch with each other; this equates to £26.6bn, or £9,470 per person[2]. If you think you’ve lost touch with a pension check with the Pension Tracing Service.

Source data:
[1] Research was conducted by Censuswide between 06.10.22 – 10.10.22 from 2,001 general consumers, national representative sample. Censuswide abide by and employ members of the Market Research Society which is based on the ESOMAR principles.
[2] https://www.pensionspolicyinstitute.org.uk/media/4185/20221027-ppi-bn134-lost-pensions-2022-whats-the-scale-and-impact.pdf
A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE).

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.

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Month: March 2023