Nine in 10 Britons doubt government pension capabilities

Public confidence in the government’s approach to old age income has ‘plummeted’, data suggests, amid fears over benefits and allowances cuts

A new ‘default’ investment option to help DIY pension savers build bigger retirement pots has been proposed by the Financial Conduct Authority (PA)

The vast majority of the UK’s over-40s say they now have no confidence in the government’s handling of pension policy, following the latest round of tinkering and continuing rumours of tax raids and allowance cuts.

Polling of almost 1,300 people by independent financial adviser My Pension Expert has revealed 87 per cent were concerned about the government’s capabilities over retirement saving policy and support.

More than half oppose the temporary suspension of the state pension triple lock, while the same proportion is also concerned about the government cutting pension benefits, such as the annual saving allowance or pension tax relief, in the next 12 months.

“It is little wonder that Britons’ confidence in pension policy has plummeted,” says Andrew Megson, executive chair of My Pension Expert. “From sudden policy changes to uncertainty around rumoured reforms, the government has not done enough to protect the interests or financial wellbeing of pension planners.”

Almost two-thirds feel that simplifying the pension system would help those trying to plan and save for old age. However, only 9 per cent of respondents have sought online guidance to inform their pension strategies over the past 12 months, while just 12 per cent have engaged with an independent financial adviser.

Almost half believe the government needs to dedicate more resources to granting people access to independent financial advice.

A Government spokesperson said: “The one-year response to temporarily suspend the Triple Lock ensures fairness for both pensioners and taxpayers.

“Combined with last year’s 2.5 per cent increase to pensions – a step we took when earnings fell and inflation barely rose - we have ensured pensioners’ incomes have been protected amidst significant economic upheaval.”

Knowledge is everything

While two-thirds of people believe their financial knowledge is excellent or above average, 40 per cent know they aren’t saving enough for a comfortable old age, separate data from workplace financial advice service Wealth at Work suggests, with significant numbers unsure of important details such as whether they are allowed to pay more into their workplace pension and how much their employer contributes.

This week, those already approaching retirement have been warned they may find their savings pot doesn’t go as far as they had hoped after the typical income bought with pension savings fell recently. The average annual annuity income – by far the most common way of converting a savings pot to an income in retirement – dropped by 2.9 per cent during the third quarter of this year, Moneyfacts.co.uk has found.

Someone who had saved a total of £100, including tax breaks, every month into the average pension fund for the past 20 years would have built up a pot worth just over £53,000, the financial information site calculates. Based on the latest annuity rates, this would provide a typical 65-year-old with only £183 a month or £2,200 a year in retirement.

“Saving for a comfortable retirement can seem daunting, and the past few months have not been too kind on annuity income,” says Rachel Springall, finance specialist at Moneyfacts.co.uk. “A third of pension funds fell during Q3 2021, which is why consumers would be wise to keep a close eye on where they have their money invested.

“Compared with the equivalent quarter a year ago, fund returns have worsened slightly in 2021, but it is worth remembering that 2020 overall was hit hard by the impact of the Coronavirus pandemic. The volatility to fund sectors makes it ever-more prudent for consumers to monitor where their cash is invested, but it is also important that they seek advice to ensure they don’t switch their funds in haste.”

Time horizons

Elsewhere, the government has this week announced new plans to encourage those pension savers so far excluded from lucrative workplace pensions to invest for old age. Designed to help ease the daunting prospect of selecting funds to invest their retirement pot in, they will be offered automatic enrolment-style “default” funds when they open a retirement savings product or account and make their first contribution, as those opening workplace pensions are.

“With inflation threatening to rampage through the economy, ensuring savers with a long-term time horizon invest their money sensibly is hugely important,” says Tom Selby, head of retirement policy at AJ Bell. “While people who choose to invest in a non-workplace pension have by definition exhibited a level of engagement, there is a risk that some will either subsequently become disengaged or struggle to make good choices about where to invest their hard-earned retirement pot.

“In a worst-case scenario, they will end up shoving all their pension in cash and risk their money being eaten away by inflation. Having a default fund which is broadly suitable while also issuing warnings to those who invest in cash over long time periods could therefore help improve outcomes.”