The traditional idea of working for over four decades and then enjoying a secure retirement has changed due to factors like longer life expectancies and dynamic work environments, making early retirement and global travel aspirations increasingly challenging. This prompts an exploration of the alterations in the retirement landscape.
One of the major obstacles to saving for retirement for the current workforce is the cost-of-living crisis. The last few years has brought a true reality check, forcing many younger people to abandon any pretence of saving for their future. As we recover from the COVID-19 pandemic, the cost-of-living is higher than ever with food and energy prices increasing significantly, particularly gas prices partly in response to the ongoing conflict in Ukraine. In the UK, core inflation (or Core CPI), which measures the prices of consumer goods and services, rose by 5.1% in the 12 months to December 2023. The recent public opinions and social trends survey has shown that 52% of adults reported their cost-of-living had increased over the last month. Among those surveyed, 90% said that this was due to increased food costs with 85% noting gas and electricity bills as another common reason.
If the cost of basic necessities wasn’t enough, the housing market prices aren’t helping either. Figures from property data company TwentiCi showed that the average rent across the UK has risen 56% since October 2019 and wages are struggling to keep up. Current asking rents in more than 40 council areas are considered unaffordable and is equating to more than 30% of the average couple’s income. As costs continue to rise, disposable income decreases, making it harder for individuals to save for their retirement.
There is no argument that since the introduction of automatic pension scheme enrolment in 2012, more people are saving for retirement. But, as successful as this is, many people still lack the awareness or knowledge of how much they will actually need to live comfortably in retirement.
Research conducted by the pensions and lifetime savings association has found that 77% of people do not know how much they need in retirement with only 20% saying they are confident that they are saving enough for retirement. It can be difficult to determine how much you will need as the word ‘comfortable’ will have a different meaning depending on the standard of life you have had during your working years.
The retirement living standards highlight the minimum income you will need to cover your basic needs with a little left over. For a single person this is currently £12,800 (£14,300 in London) and for a couple, £19,900 (£22,4000 in London). To live ‘comfortably’, defined as having more financial freedom and some luxuries, this is £37,300 for a single person (£40,900 in London) and £54,500 for a couple (£56,500 in London).
With many workers struggling to balance the cost of essentials with future financial stability, it is easy to understand why the UK has an impending retirement crisis on their hands. Add in factors such as high student debts, high rent costs and the increasing cost of daily essentials, it doesn’t look like it is going to get any easier to make retirement dreams a reality, unless you seek professional advice.
The Role of Financial Advice
In the face of the pension savings shortfall, the need for financial advice becomes paramount. Throughout history, financial advice has played a critical role in helping individuals achieve their retirement goals. While the savings environment has changed, the importance of seeking professional advice remains constant.
Financial Advisers can guide individuals through the complexities of retirement planning, taking into account factors such as inflation, savings disparities and investment opportunities. With their expertise, they can help individuals to make informed decisions to bridge the pension savings gap and secure a more comfortable retirement.
The pension savings shortfall in the UK is a pressing issue that affects individuals across generations. Rising costs, decreasing disposable incomes and disparities in savings contribute to the looming retirement crisis. However, with the guidance of Financial Advisers and a proactive approach to retirement planning, individuals can navigate these challenges and improve their prospects for a more financially secure future.
It is crucial to take immediate action, seek professional advice and explore investment opportunities to bridge the pension savings gap. By doing so, you can work towards a more comfortable retirement and mitigate the potential impact of the pension savings shortfall.
Remember, your retirement should be a time to enjoy the rewards of your hard work, not a period filled with financial stress and uncertainty. Take control of your future and start planning for retirement today by getting in touch with the Lync Wealth team of nationwide Financial Advisers.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). Your capital is at risk. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested.
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