Over three-quarters of workers want employers to offer more education on financial matters, starting with guidance on the A-Day changes, claims JPMorgan INVEST.
Research carried out by the company suggests around 3.3m workers could miss out on up to 66% extra cash in their old age because they don’t understand the benefits of the planned pension reforms, which could allow them to increase the funds available to them after A-Day.
JPMorgan INVEST says 68% of those in full-time employment have no idea what A-Day is, with one in 10 believing it to be a proposed new bank holiday, a new EU directive or a day when people were encouraged to stop drinking.
The reason for this “pension blind spot” is attributed by 46% to the over-complicated financial jargon surrounding the issues which means they are delaying sorting out their pensions in favour of researching holidays or watching TV. As a result, 68% of those surveyed, say they have taken no action in preparation for the A-Day changes.
And JPMorgan INVEST says the financial ignorance is contributing to the growing pensions crisis as uninformed employees fail to take advantage of the “free money” of company pension schemes which works out at an extra £1,238 a year.
JPMorgan INVEST claims this “blind spot” is why 80% of those surveyed want employers to play a bigger role in providing further education about financial matters, including guidance on A-Day and how it will affect them.
According to the research, just 3% of employees have been offered work-based financial education sessions by their employers, despite pensions being ranked as the number one work ‘perk’ ahead of extra holidays or gym membership.
Jonathan Watts-Lay, director of JPMorgan INVEST, says: “Ignorance is costing the British public its security in old age. The research emphasises employers have a responsibility to their workforce to ensure they understand their financial futures. A-Day is a fantastic opportunity, but the benefits can only be achieved by clear and timely education in the workplace."
Meanwhile Barclays Financial Planning has also revealed a worrying gap between people’s expectations about their retirement age and income and the financial reality.
Research from the firm, shows 48% of workers are not paying anything into a pension, and of those that are the average contribution is far less than it should be, however this does not seem to be worrying the majority of adults, with 63% claiming not to be worried about retirement planning at all.
Barclays Financial Planning says the average worker wants to retire at 59 with an average annual income of £18,300, but Barclays says the reality is they will probably be working until they are 63, and their annual income is likely to be well short of their expectation.
An average contribution of £54 a month will produce an income of just £2,054, which combined with a full basic state pension of £4,266, would result in a retirement income of just £6,320 a year, about a third of what people are expecting.
Should a worker be lucky enough to get the maximum state second pension (S2P) of £7,598 on top of this, it would boost their income to £13,918 by the time they reach 65, but would still be a third less than they are hoping to receive.
Barclays Financial Planning say for a single 30 year old man with a target retirement age of 65 to achieve an expected annual retirement income of £20,560, he would have to increase contributions from £73 a month to £345, while a woman of the same age would have to increase her contributions from £35 to £217 in order to receive £15,570 a year.
Stephen Ingledew, director of Barclays Financial Planning, says as a nation we need to get real round retirement and view planning as a necessity and not a luxury.
He adds after comparing the results with research carried out by Barclays 10 years ago, little has changed. Ten years ago, Ingledew says Barclays found 23% of workers had not made any pension provision, which has now increased to 48%, suggesting people have not moved forward on retirement at all in the past decade.
Ingldew says: “People continue to have high expectations around retirement, but contributions remain woefully inadequate and mass inertia persists. We need to take personal responsibility to ensure we are saving enough.”
He adds financial education is very important, particularly when we’re seeing 28% of people reviewing their pension on a regular basis. But he admits putting money aside for retirement is now competing with money for holidays and nights out so it is easy to see how it seems less appealing.
But he warns people should be putting aside money now, as the “sooner you start to save for retirement the less daunting it becomes”.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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