Don’t rely on the government or your employer to look after you in retirement

NOTE: This post is more than 12 months old, and the information contained within may no longer be accurate.

The current full state pension is £164.35 per week if you have a total of 30 qualifying years of National Insurance contributions or credits, just £8,546.20 a year gross. Check yours now, you can do it online and it takes no time at all. I only have to wait until I’m 68 years old, although something tells me this goal post will move before I get there.

I am employed, so my employer is matching my payments into my “private pension” a total of 5% or 6% of my salary each year and as long as I’m doing something, this is better than nothing right?

Andrew Bailey, Chief Executive of the Financial Conduct Authority (FCA), stated in a speech on the 15th September 2018 that:

There has been a progressive shift in the responsibility for both retirement saving and pension drawing from employers and the state to individuals

In my opinion there are 3 main reasons for this:

  1. The cost to the country of providing your pension until you’re into your late 80’s, or later, is unaffordable.
  2. You may never see anything like a Final Salary Pension (defined benefit) as long as you live, because they are too expensive for employers to offer. So employers offer cheaper group personal pension schemes where you take on the risk and management of the pension and they are absolved of responsibility once you leave the company.
  3. The government have made saving into and taking your personal pension so easy, that you have no excuse but to save for your own future. Tax uplift on contributions, tax free cash on the way out, flexible access drawdown for everyone and no compulsion to buy an annuity. They have also increased how much you can save tax free in ISAs to £20,000 per year.  That means you could save at least £400,000 over the next 20 years to provide you with tax free pot of money whenever it is needed.

Put those 3 together and the shift is obvious, employers and the state have moved the burden of retirement firmly over to you.

As I said, I have an employer’s pension and I’m saving, so I should be fine?  The trouble can be when you look under the bonnet of some employer pension schemes. If you are invested in a “default pension fund” offered by your employer then you should look at where you are invested and if this is the most suitable place to provide for your future.  These default pension funds are often one size fits all arrangements. They may offer little choice and they often do not provide the full range of flexibility possible when you reach retirement and that is before we even talk about performance of the default pension fund.

Put simply, the state will not support your needs in retirement, employers are probably picking the best “one size fits all” arrangement to make their lives easier and if you don’t look closely at what you’re actually invested in, this could impact on your retirement.

Andrew Bailey at the FCA is right, there has been a progressive shift towards you taking responsibility for your own retirement. The earlier you start this process the better and it is never too late. Understanding your current position and building a comprehensive plan for the future will ensure you’re prepared for the future. If you want to chat through your current plan and ask any questions then feel free to get in touch.

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20 Jun 2022

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