The three main reasons for not having a pension

The three main reasons for not having a pension

For some people, retirement planning can seem like a Catch-22 at times. They can’t afford to save into a pension, but they can’t afford not to either.

What are they supposed to do? One thing is for sure; something!

Burying your head in the proverbial sand and hoping that the problem goes away isn’t going to solve it. Nor will making up excuses which, if truth be told, aren’t 100% true.

A new report from the Financial Conduct Authority (FCA) reveals that one in three UK people have no savings, and will have to rely solely on the State Pension. This means that around 15 million people will find themselves unable to afford the retirement they want, due to a lack of retirement planning.

So why aren’t people taking their retirement planning seriously? And more importantly, what can they do to ensure that they don’t put their financial wellbeing at risk in retirement?

Reliance on the State Pension

The Financial Lives survey, conducted by the FCA, interviewed 13,000 people and found that 31% of UK adults have no private pension provision. This will leave them entirely reliant on the State Pension, currently £159.55 per week providing they have at least 35 years of National Insurance Contributions (NICs).

Arguably, this may be enough for some to live on. But, it is unlikely that they will have the standard of living that they desire, or that they will be prepared for a financial emergency. It is also likely that the State Pension will be significantly lower than the income they earned before retirement.

For those that won’t be able to survive on the State Pension alone, an alternative income must be provided, usually from a personal or workplace pension. However, the report reveals three common reasons that people give for not paying into a pension:

Reason #1 “It’s too late to set a pension up”: 32% of over 50s believe that they have missed the boat for pension contributions. Whilst the right time for setting up a pension is bound to differ depending on who you ask, the generally accepted answer is as soon as humanly possible.

It is never too late to pay into a pension, and if you have a workplace scheme available to you, it will be boosted by three parties paying into it:

  • You
  • Your employer
  • The Government (in the form of tax relief)

Leaving things to the last minute isn’t ideal, but what’s the alternative? Trying to get by on the State Pension? Never retiring?

Anything is better than nothing, so if you can’t start yesterday then start today!

Reason #2 “It’s unaffordable”: 26% of people believe that they can’t afford to pay into a pension. Finding the money to contribute into a pension is never an easy thing. There is always something seemingly more urgent to spend money on, and if there isn’t, you can always think of something new and shiny that you simply can’t go without.

Retirement planning is all about striking a balance between living today and saving for tomorrow. With relatively high inflation and stagnant wage growth, it is no doubt more difficult to put money away for the long-term. However, utilising every bit of help available, such as workplace pensions and Lifetime ISAs can make the little money you have to contribute stretch that bit  further.

Often, the habit of putting money aside is the most difficult thing to form. Starting small, and scaling the amount contributed into a pension up or down, depending on how much you can afford each month can be effective. Paying a set amount into a pension at the start of the month, before any other expenses come out can also help. This will ensure that any money left over at the end of the month has already been spent on your retirement goals, rather than a few cheeky pints after work.

Reason #3 “I rely on my partner”: 12% of people said that they relied on their partner to contribute into a pension, and would be supported by them in retirement. This may be a valid point, but what happens should the happy duet decide they want to pursue solo careers? Unromantic it may seem, but hedging your bets and ensuring you have a safety net is rarely a bad idea. In 2014, there were 240,854 marriages and 114,720 divorces, meaning those relying on a partner are doing so against worryingly high odds.

Divorce talk aside, what happens if the person you are relying on dies? It isn’t a pleasant thought, but what happens to their pension?

Take advice

From those that feel they have left it too late, to those who feel that saving into a pension is unaffordable, professional financial advice can put you back on track with your retirement planning. Whilst it probably won’t be enough to live on, the State Pension forms the foundation of your income in retirement, and an adviser can help you understand how much more is needed for the lifestyle you want to lead.

For more information, get in touch using the phone number at the top of the page.