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Millions struggle to understand their most important source of income in retirement

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  • Record membership of occupational defined contribution pensions (23.4m memberships)1
  • Largest proportion of private wealth held in pensions (£6.4trn)
  • But, only four in ten Brits think they ‘understand enough about pensions’
  • Seven out of 10 can confidently estimate their cash savings vs only 39% who can say how much their pension is worth
  • More than one-in-four people will be pensioners over the next century as this population grows from 12 to 20 million

More people are saving into a pension than ever before, but new research reveals a widespread lack of understanding among savers.

Today’s annual study of the pension landscape from The Pensions Regulator reports record membership of occupational defined contribution pensions, at 23.4 million1. This is up from 21.7 million last year.

This adds to other recent data highlighting the importance of pensions for millions. In early January, data from the Office for National Statistics2 reported that individuals in the UK hold a record £15.2trn of private wealth and pensions represent the largest proportion of this figure at £6.4trn. This exceeds £5.5trn in property and the £3.3trn in other assets, including around £2trn in cash. 

The need to close the gap between pension participation and understanding is now critical.

Overall, auto-enrolment has been the biggest driver of participation into pension saving over the last decade. When it was introduced in 2012 only four in ten (39%) private sector workers were actively saving for their retirement. This figure is now more than 70%. However, it is risky to assume that this participation rate has driven clearer understanding. Despite a significant increase in participation rates, the proportion of adults who agree they ‘understand enough about pensions’3 has only increased by one percent point in the last ten years (from 43% to 44%).  

Recent research4 from Aviva found a conflicting relationship between value and understanding of various elements of ‘wealth’. Seven out of 10 (69%) Brits can confidently estimate the current value of their cash savings and two in five of them (41%) are very confident. This ‘confident’ figure rises to three quarters (75%) of those aged 55+. Cash savings represent around 12% of total private wealth in the UK.

More than half (53%) of those surveyed could also estimate the value of their property quite accurately. This figure rises to 61% of those who are retired. Property represents around 36% of total private wealth in the UK.

However, despite pensions potentially being their biggest combined asset, only 39% of people could confidently estimate the value of their pension pot.One in ten people surveyed were ‘very unconfident’ about estimating the current value of their pension savings. Pensions represents about 42% of total private wealth in the UK.

The need to close the gap between pension participation and understanding is now critical. Over the next century it is estimated that the pensioner population in the UK will increase from 12 to 20 million. Meaning that more than one-in-four people will be pensioners.

Alistair McQueen, Head of Savings and Retirement at Aviva said, “A record number are saving more money in private pensions. And pensions represent our biggest single source of private wealth. In short, pensions are more important to more of us than ever before.

Alistair McQueen, Head of Savings and Retirement at Aviva
Alistair McQueen, Head of Savings and Retirement at Aviva

“However, despite these record highs, pensions remain a mystery to most. Worryingly, our research shows that less than  four in ten people can confidently estimate the value of their pension savings. This could put our retirement wellbeing at risk as millions either under or over-estimate the value of their pension savings.

“Automatic enrolment has brought pension savings to millions. And the pension freedoms have given us unprecedented choice in how we can use that money when we reach 55. But we risk sleepwalking into our retirement if we don’t understand how much we have in our pension pots, what those savings might look like as retirement income and how long we need that money to last.”

The good news is that there is an plenty of help available. The financial advice community helps thousands of people every year; there is also free help from the government in the form of the Pension Tracing service,  Money and Pension Service,  MoneyHelper and Pension Wise. Financial providers like your bank or pension provider can also help; and the internet has opened a free encyclopaedia of hints and tips.

-ENDS-

Media enquiries

Fiona Whytock

Retirement, Savings and Investments

Sources

DC trust: scheme return data 2021 to 2022 | The Pensions Regulator

Note: Memberships does not equate with individuals. One individual can have multiple memberships. The figure of 23.4 million excludes ‘micro’ occupation DC schemes with fewer than 12 members.

2 Office for National Statistics

3 Survey by Unbiased and Opinium of 2,000 non-retired UK adults in June-July 2020

4 Aviva Research was conducted between 5-7th January 2022 by Censuswide. Surveyed 2,000 UK respondents (national representative sample). 

Notes to editors:

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