Guidance gap drives £132bn pension savings shortfall

The pension pot of a typical person aged 50-64 in the UK is 58 per cent short of what they believe they’ll require, translating to a £132bn gap between expectations and reality, a report from the Social Market Foundation (SMF) has revealed.

The report, sponsored by Phoenix Group, stated people approaching retirement age were on average £242,546 short of the pension pot they would need to deliver the pension income they want in later life.

SMF attributed this gap to a lack of pensions guidance, revealing only 31 per cent of 50 to 64 years olds had a ‘broadly accurate’ idea of the savings they need to deliver their desired income.

It also found 20 per cent of 50 to 64 year olds had spoken to a financial adviser about their pension and 14 per cent of those accessing a DC pot for the first time had used Pension Wise.

More than half (53 per cent) of 55-64 year olds had not heard of Pension Wise.

Two-fifths (40 per cent) of respondents said they were not confident they would be able to meet their desired income, with 14 per cent saying they were not confident at all.

The report detailed the barriers that prevent savers from becoming better informed, such as a lack of awareness about what is on offer affecting their usage and regulatory barriers that could be holding back provision of advice and guidance.

SMF research director, Scott Corfe, commented: “The blunt truth about pensions is that many people don’t enough to make the decisions that would give them the retirement they want.

“Poor information will mean poor outcomes for too many people. There is a serious gap in the provision of advice and guidance around pensions, and that gap leads to real financial harm.

“Lacking an accurate understanding of what they will need for the retirement they want means some people will not save enough and end up disappointed.

“Not fully understanding their options on the way they use their pension savings in retirement means that some people will not make the best use of that money.”

Phoenix Group, CEO savings and retirement, UK and Europe, Andy Curran, added: “The reality is the majority of people have to navigate the complexities of pensions on their own.

“SMF’s report identifies the cost of the huge guidance gap and how millions of savers could be substantially better off if this gap was closed.

“While regulated financial advice sets a ‘gold standard’ for helping people, it is not likely to be the solution for the vast majority. Even the government’s free Pension Wise service is limited in scope.

“Across Phoenix Group we have around 3.5 million customers aged between 50 and 64 making some crucial financial decisions without the level of guidance we believe they need. This does not sit comfortably with us.

“Major initiatives over the past decade have encouraged pension savings – but saving is more than just one factor
.
“We must now help people feel more comfortable in making financial decisions throughout their life to help them get better outcomes.

“At Phoenix Group we are calling for a government-led working group to be set up to foster collaboration between the regulator, the advice community, providers and consumer groups to review the rules and address this challenge, so that millions more savers get to a better place, and a better retirement.”

The SMF made a number of recommendations to offer better pension guidance to more people such as an expansion of Policy Wise, government investment into a nationwide pensions awareness campaign and clearer definitions from the FCA.

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