The pension time bomb: 31 percent plan to rely on state benefits
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A recent YouGov report highlights a worrying figure: 27% of people on pension schemes have not paid into their fund each year. The "Pensions and Investments 2013: Retirement Planning and Gender" report found that 30% stated they did not pay because they did not have enough disposable income to put into savings, while 19% cited ill health or unemployment.
Even more startling was the discovery that 54% of those paying into pension schemes have under £50,000 in alternative savings and investments, while almost 30% have no additional savings or less than £10,000, and 11% have no other savings or investments at all.
In fact, the YouGov report indicates a lot of confusion and lack of awareness of the retirement situation. For example, an annuity providing £10,000 a year will require a pension fund of around £180,000, but 12% of respondents thought they needed up to £100,000 to be comfortable - and 31% said they will rely on state benefits when they reach retirement because their fund would not be very big.
The pension landscape looks to be even worse for the self-employed - numbers of which have increased to 4.5milllion since 2008 - as only 31% are paying into a pension at all, compared to 52% of employees (including employer contributions), and only 39% for the self-employed over the age of 60. There is no auto-enrolment into a pension scheme for the self-employed, so this gap is certain to increase in the coming years. The only government-induced saving grace is that as of 2016 there will be a Single-Tier State Pension, meaning the National Insurance contributions of the self-employed will be treated the same as employee contributions for State Pension. Nonetheless, employees will still have the extra security of the auto-enrolment, and the self-employed lack this benefit.
Part of the problem regarding a lack of pension contributions is that people seem to be unaware of what size pension pot they will need, which makes it impossible to plan an accurate pension fund. Which? has a guide for planning and managing a budget - it isn't strictly for pensions, but the advice is fairly universal and can go a long way to helping a person work out their expenditure.
A lack of a pension fund is a serious concern, so much so that the phrase "pension time bomb" has been coined. Unfortunately, at the time when a pension is needed, it's too late to change the size of it. In other words, a good pension requires forethought, and there's no such thing as starting too early. The State Pension for a single person is currently below £6,000 a year, so a financially comfortable retirement will elude those who do not plan appropriately.
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