Savings exodus gathers pace in UK as pensions contributions fall

Pension contributions in the UK gone down by £11 billion over last 12 months as people cut the amount of money they are saving, according to an annual report that looks at the state of the nation’s retirement plans.

A fifth of Brits in, or nearing, retirement have cut their retirement savings by an average of £342 a month. Public sector pension holders have cut pension savings by an average of £321 a month compared to cuts of £434 made by those with private pension plans.

The annual State of Retirement Report fromLV= also shows that 17% of over 50s do not want to work past the age of 65 but may be forced into doing so due to a lack of pension funds. But over a third, 36%, support the rise in state retirement age to 66 years from 2012.

The average fall in pension contributions over the last year is more than double that made by those in, or nearing, retirement in 2009 which was £137, and is also greater than cuts made in 2010 at £324.

The situation is worsened when the loss of tax relief is considered. For a higher rate tax payer receiving 40% tax relief, a fall in contributions of £342 a month actually represents £570 in reality. These figures suggest that retirees are placing a higher importance on dealing with more immediate financial strains rather than considering the longer term, the report says.

A further quarter, 25%, of those in, or nearing, retirement, do not save at all and just over a quarter, 26%, of those not already retired expect to retire later in life than they had originally planned and 27% say they are unsure when they will be able to retire.
 
Following the recent pension reforms announced by the Coalition Government, many of the over 50s are still in the dark on certain issues. Three out of four, 74%, are unaware that the requirement to buy an annuity at age 75 has been abolished and one in four, 23%, are not aware that the introduction of a flat rate state pension will replace pension credits by 2015.

When over 50s were asked about their support of pension reforms 63% said that they support the introduction of a flat rate state pension to replace pension credits, compared to 9% that oppose it.
Some 48% support the proposal to allow people to have early access to their pension savings with just 12% opposing this move. Despite this the Government has recently announced that early access will not be allowed after they said they had found that there was limited evidence the move would increase contribution levels.

‘The Coalition Government has proposed and made a significant amount of changes to our pensions' system which is yet to register with many people in or nearing retirement. However, it is clear that many of the changes, such as the removal of compulsory annuitisation and a flat rate state pension, are gathering support from the over 50s,’ said Ray Chinn, LV= head of pensions.

‘Despite these changes, there is still no indication that any will act as an incentive to get people saving, and saving more, for their retirement years. In fact, our report has found quite the opposite, as a significant number are still cutting back on what they save each month and by a greater sum as time goes by. It also appears that the Government may have misjudged the public mood by shelving plans for early access, which may indeed have provided a welcome stimulus for wider pension saving,’ he added.

The report also shows that over a third, 35%, of women aged over 50 do not have a pension and nearly a fifth, 18%, of those that do and are in, or nearing, retirement have decreased the amount they have put into their long term savings by an average of £203 per month.