UK retirement savers are expecting to draw from pension pots for up to 27 years on average, according to new research from J.P. Morgan owned digital wealth manager Nutmeg, which could mean living to 93 years old based on the current state pension age.
Despite this, as many as two-fifths (42%) know they aren’t saving enough. Savers desiring a moderate retirement lifestyle with one overseas holiday per year and several meals out each month are now estimated to need an annual income of at least £31,300, rising to £43,100 for a more comfortable lifestyle with small luxuries and extra minibreaks. Yet, one in five (20%) don’t know how much they are putting in their pension, and a quarter (24%) report not having a pension at all.
The findings come at a time when the nation is showing increasing interest in longevity and wellness, from plant-based diets to sleep tracking and step count. However, over a third (37%) of us – equivalent to 19.8 million UK adults - would advise our younger self to consider future wealth as much as future health.
Inertia and intergenerational wealth transfer are among the main reasons for not actively looking after our pensions as much as we’d like to. One in 12 hope an inheritance (8%) or a lottery win (8%) will come to their rescue. Meanwhile, 18% see retirement as far off and 22% think their finances will ‘probably work out’ – increasing to 28% among those earning £50,000/year or more and highest among six-figure salary earners (38%).
Claire Exley, head of financial advice and guidance at Nutmeg, a J.P. Morgan company, said:
“We are fast adopting healthier lifestyle choices but this focus on longevity seldom extends to financial planning. The reality is more of us will be living longer, more active lifestyles that defy common stereotypes about post-working life. Inertia around retirement being too far in the future or a misconception that contribution shortfalls can be made up for on future higher salaries are a factor, but compound growth in the market can be difficult to recoup and smart planning should amplify savings.”
Meanwhile, the research reveals that building up cash savings (60%) is seen as the number one action contributing to future financial fitness. However, this means consumers could be missing an opportunity to capitalise on investment growth to make retirement pots stretch for the 27 years we’ve come to expect. While recent data shows demand for cash ISAs falling relative to stocks and shares ISAs, the former still account for 61% of all ISA subscriptions as the nation embraces the familiarity of cash.
Claire Exley said:
“There’s merit in cash savings to take advantage of current interest rates and for easy access, but investing can be crucial if you want to outpace inflation over a lifetime and even when you're taking income from your pension. Speaking to an adviser about your retirement lifestyle goals, reviewing your employer’s auto-enrolment policy to maximise contributions and tax relief, and consolidating smaller workplace pension pots are all options to consider.”
New and existing clients who initiate a transfer valuing at least £5,000 from existing pensions to Nutmeg by 30th November can choose to have a cash investment boost or Avios. Terms and conditions apply, for more information visit: https://www.nutmeg.com/promo/pension-transfer-offer