Brits have ‘limited understanding’ of pensions but are pessimistic about its future
Brits have a ‘very limited understanding’ of pensions but are sceptical about its future and the living standards it can provide in retirement, according to a leading economic think tank.
Just 20% of people aged 25 to 64 could correctly state (to within around £20) how much a full state pension is worth each week.
More than half (58%) of the 3,000 working age people surveyed said they did not know. But this lack of knowledge was more prevalent for 25-49-year-olds (65%) than those aged 50-64 (46%).
The research by the Institute for Fiscal Studies (IFS) revealed that almost all of the others thought that a full state pension was worth significantly less than its current £204 per week. Fewer than one-in-twenty (wrongly) thought it was worth £220 a week or more.
When it came to the state pension age, there was greater understanding, the IFS found. Eight in 10 said they thought the state pension age would rise from the current age of 66 (set to rise to 67 by 2028).
Retirement standard of living questioned
The IFS study – in conjunction with the abrdn Financial Fairness Trust – also looked at people’s concerns over the state pension.
Seven in 10 (73%) said that the state pension does not provide a reasonable standard of living in retirement while just 14% said it does.
Significant numbers also said their retirement income “will not be good”. people are also so pessimistic that only one in five expect to be better off in retirement than their parents, with almost half expecting to be less comfortably off, even among 50-64 year olds.
This pessimism is further evident as a third believe the state pension will not exist in 30 years’ time.
This view is common among those who voted to Leave the EU in 2016 and those who voted Conservative in 2019.
Pensions are still the ‘single most important form of income’
Report authors, Jonathan Cribb, associate director, and Carl Emmerson, deputy director at the IFS, stated: “For most people the state pension will be the single most important form of income in retirement, and people will only be able to plan their retirement finances well if they have some sense of how much the state pension will be able to support them.
“The fact that the state pension is so important for many people’s retirement income means that it would be incredibly difficult – without enormous increases in private saving – to meet a good standard of living in retirement if the state pension or something similar did not exist.
“In many ways the state pension provides a ‘bedrock’ for income in retirement, on top of which people can build private pension entitlement. Confidence in the state pension system is therefore important for people planning their pensions and retirement finances.”
However, they added: “It seems like relying – alone – on people making well-informed choices to save more for retirement is going to be hard.
“Finding solutions to these problems that recognise this lack of understanding, while still giving people support and flexibility to make choices that are more appropriate for them, seems like the right goal.”