Survey Reveals Significant Gaps in Readiness for Retirement
Perhaps understandably, thoughts of retirement and making plans for our perfect ‘third act’ are often deferred and displaced by the need to meet more immediate financial responsibilities, as we bow to the pressure to achieve life goals which feel more pressing and are therefore prioritised.
Even during one’s forties, retirement can seem a long way off, and the prospect of getting one’s affairs in order and putting a plan in place can seem daunting. Financial inertia can set in when people avoid making financial decisions because the rewards (and potential consequences of inaction) are not immediate – but unfortunately, the longer this inertia persists, the greater the relative potential downside.
Starting sooner rather than later inevitably pays dividends, and as financial advisers we often see first-hand the significant problems that can arise if people don’t plan for the future – from paying too much tax, to missing out on valuable investment gains that would afford you the opportunity to retire earlier, with a better quality of life. Neglecting to find out whether you’re retirement ready, and putting a plan in place accordingly, can be costly. And the costs aren’t purely financial, as procrastination almost inevitably results in more stress and anxiety in the longer term – something that we explored in our recent article on the connection between our finances and wellbeing.
With all this in mind, we wanted to find out exactly how retirement ready people are by asking ten simple but important questions. The questions in our Are you retirement ready? survey ranged from whether respondents had thought about when and where they wanted to retire, to asking if they knew how many company pensions they had accumulated, whether they knew the cumulative value of these funds, and how confident they were that these funds would sustain the kind of lifestyle they envisaged in later life.
We were surprised by some of the 300+ responses1 we received, and we think you might be too.
Almost half the respondents (47%) had lost track of how many pensions they’d accumulated over the course of their career and were unsure of their cumulative value
Given the average person changes jobs 12 times in their lifetime2 it’s perhaps understandable that people lose track of all the pensions they have paid into, but it’s important to identify each of these pension pots and establish an understanding of what the funds held in each are worth in order to be able to calculate your cumulative pension assets and their total current and potential value.
Nearly two thirds (62%) don’t know what their pensions are invested in, and more than half (57%) don’t know what they’re being charged
Ensuring that your investments are aligned with your attitude to risk throughout your lifetime is very important, so a ‘fire and forget’ strategy which doesn’t review and potentially re-align your investments with your life-stage and your capacity for loss, is a key consideration that needs to be addressed. Similarly, allowing fees to accrue unchecked over the course of a pension’s investment lifetime could significantly compromise the growth of the fund and the value that it ultimately delivers.
Almost two thirds (63%) of respondents with multiple pension pots haven’t looked at consolidating their pensions into a single plan
Consolidation can simplify your administration and make it easier to manage your retirement planning. Importantly it can also potentially reduce fees and lead to greater investment growth. 10% of respondents said that they thought that this was “a good idea in principal but had struggled to find the time to do it”. As financial advisers, we would advocate that this would be time very well spent – and it is something that we can help with, should you require support.
More than one in three (35%) said that they didn’t know at what age they plan to retire
The days of waiting until a prescribed age to retire are long gone – with many dreaming of retiring as soon as possible, whilst others imagine a phased retirement involving a monetised passion or hobby that they find rewarding and fulfilling – but defining this, and determining how much you will need to draw from your pension each month (or the value of the annuity required) to fund the kind of retirement you envisage, is fundamentally important. As advisers we can help you calculate and visualise this with our digital retirement planning and ‘cashflow’ tools, to quickly and easily allow you to see how retiring at potentially different ages, and drawing different levels of income, will impact the sustainability and quality of your retirement.
Almost half of respondents (44%) do not know when they can access their pensions and 50% don’t know how much they can take as an initial tax-free lump sum
Different pensions will have different stipulations regarding access, but if you’re not aware of exactly when you can access your pension and how much you can take initially as a tax-free lump sum, this could seriously compromise your plans.
57% of respondents don’t know how their pension assets will benefit their family after their death
It is important to consider the provisions made for your spouse/partner and family when you die. Many people are unaware that their pension funds, if part of a defined benefit scheme, when they die, may not be passed on to their spouse or beneficiaries – but as part of a SIPP or defined contribution scheme could be paid in full. Moreover, their pension assets could potentially be passed on to their beneficiaries free from any Inheritance Tax, if managed correctly as part of their estate planning.
70% of respondents told us they don’t know what the implications of retiring abroad would be for their UK pensions – in terms of access, currency conversion and tax considerations
It’s becoming ever more popular to retire abroad, and if you choose to do so you may be able to reap the benefits of an offshore pension plan; such as potentially accessing your pension earlier, avoiding restrictions on higher-rate tax relief, and having more control over where your pension is invested. These and other benefits can result in the same contributions being worth much more than a UK pension.
That’s why we would recommend speaking to one of our dual-qualified financial advisers. We’ve worked with hundreds of successful expats looking to achieve financial independence and retire in a tax-efficient way. Learn more about how we could potentially help you here.
71% of respondents hadn’t reviewed their pension assets within the last 12 months
To ensure that you’re making the most of your savings and investments, it’s wise to regularly review them. Concerningly 71% of respondents said that they last reviewed their pension assets more than a year ago, or couldn’t remember when that last reviewed them, whilst nearly one in four (23%) said that they keep meaning to set aside the time to do it but haven’t been able to. As financial advisers, retirement planners and pensions specialists Forth Capital can help you and ensure that you are retirement ready. We operate around the globe offering face-to-face, online and over-the-phone advice from our dual-qualified advisers who have personal experience of expat life. Contact us today.
[1] 358 Online responses between 24 Oct 2022 and December 10 Dec 2022
[2] Source: Zippia April 2022
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