Pensions may strengthen for the younger generation
It's never too early to start saving for a pension – you've no doubt heard that one before, perhaps while searching for pension advice online or in news reports on the financial future of pensioners in this country.
Hopefully, you took note of it and started saving as soon as you possibly could, thinking of your retirement planning long before other milestones such as getting married or having children. Maybe you left it a little later. Either way, solid financial planning, which may involve pension transfer advice from a professional financial adviser, should help you make secure financial decisions.
Young workers today don't need to have someone to remind them that they should be saving for retirement thanks to auto-enrolment, which is a scheme that makes sure, unless they choose to opt out, all workers pay part of their salary into a private pension scheme. As almost everyone could do with starting their retirement saving as early as possible, auto-enrolment is a great idea, and now it appears that it could be the main factor in the improvement of future pension incomes, settling fears that some young savers may have regarding the prosperity of their long-term future.
New analysis by the Resolution Foundation has presented this optimistic view for the younger generation while simultaneously giving men in their 40s cause for concern.
Despite fears for the size of many millennials' pension pots, the new research has found that they are likely to see their funds recover in time for their retirement. They may even find they have similar amounts to today's pensioners. The assessment suggests that the generation currently in or entering retirement (baby boomers) will, on average, have a pension of 58 percent of their salary while millennials' pensions will be about 56 percent.
However, the situation is likely to get worse before it gets better. In 2020, the average pension for a man could be around £310 a week, which takes into account private and state pensions. In the mid-2040s, the amount is likely to fall to approximately £285 (which is why the report is bad news for men currently in their 40s) before rising to around £300 per week by the end of the 2050s.
There is no such dip forecast for women, and it is predicted that they could be receiving an average £225 a week in 2020, reaching £235 in the mid-2030s, and then staying at that level.
"Millennials are on course to enjoy similar levels of retirement income to today's pensioners, largely thanks to the success of auto-enrolment in getting them to save into a workplace pension from an early age," said David Finch, the senior economic analyst at Resolution Foundation.
The report did have to make a few assumptions to reach these figures, and there are a few caveats attached. The Resolution Foundation said that while the size of pensions won't be wildly different, millennials will probably not be able to accumulate the same housing wealth as baby boomers (Finch noted that housing is commonly the top concern for young savers, with retirement coming in second). The data has also assumed that people will stay in the Auto-Enrolment Scheme rather than opt out. The latter may become a much more attractive option in the future when the contribution required from employees will increase from one percent to three percent in 2018 and then to five percent in 2019.
Some investment experts also believe that, in a time of ultra-low interest rates, the report's prediction that auto enrolment pensions will grow at a rate of 5.6 percent a year is too high.
In conclusion, the report stated, "Our analysis of current and future retirement income adequacy shows that neither pessimism nor complacency is warranted".
Of course, if you're at all concerned by the information in this new report, contacting a financial adviser for professional pension advice is always useful. You may have children who you wish to save for so you can help them out financially in later life, helping them get through university or getting onto the housing. We can talk you through all your options regarding this.
Alternatively, you may be enjoying your retirement already, in either the UK or a dream destination overseas. If that is the case, then financial advice may also help you if you're unsure about how best to manage your retirement funds. For example, receiving pension transfer advice could lead you to discovering the many benefits of moving your pension into a Qualifying Recognised Overseas Pension Scheme (QROPS) which offers reduced tax liability or a SIPP which gives you greater control over your pot.
Speak to us today Blacktower fully discuss your options.