Pensions savings finally hit by recession woes
Two years on since the start of the credit crunch and it is only now that the long term effects of the downturn on pensions savings has been realised according to the sixth annual Scottish Widows UK Pensions Report. While saving for retirement has slowly been on the rise in recent years, the latest Report reveals that pensions savings have seen a dramatic drop since last year and are in fact at the lowest level since 2006. Those saving adequately have decreased by 6% since last year down to 48% and a fifth (21%) of people who could and should are saving nothing at all.
The Scottish Widows UK Pensions Report first launched in 2005 and uses two key measures to monitor pensions savings behaviour in the UK: the Scottish Widows Pensions Index and the Scottish Widows Average Savings Ratio. The Index and Ratio are based on those who could and should be preparing financially for retirement - those aged 30 or over (and not retired) and earning at least £10,000 a year.
The Scottish Widows Pensions Index, which tracks the percentage saving adequately for retirement, has decreased from 54% in 2009 to 48% in 2010. And the Scottish Widows Average Savings Ratio, which tracks the percentage of income being saved for retirement by UK workers not expecting to get their main retirement income from a defined-benefit scheme has decreased from 9.3% to 9.2%, falling almost 3% short of the 12% that Scottish Widows believe people should be saving to achieve a comfortable retirement.
Ian Naismith, Head of Pensions Market Development, Scottish Widows comments: "The last two years have been tough on the economy, and we are finally seeing the effects trickling through to pensions savings. The previous three years saw a steady rise in the number of people saving adequately for retirement, but now we are seeing the full impact of the downturn on people's retirement pots. While there are signs that the economy is recovering, the nation's saving habits paint a very different story. There is still a great deal that needs to be done from both the Government and the industry to better encourage pensions savings for the long term, particularly in the current economic environment. With 21% of those that should be saving putting aside nothing at all there is still a big challenge ahead."
The pensions losers
The report reveals that although both women and men are saving less than last year, women are still lagging far behind men, although men haven't escaped the downturn as they have seen a greater drop in pensions savings than women (7%). Just 43% of women are saving adequately compared to 47% last year, whilst 52% of men are saving adequately this year compared to 59% in 2009. But the group hit the hardest is the over 50s, those that should be saving most for retirement, with only half of this group saving adequately. In particular, women over 50 are faring the worst, in 2009 52% were saving adequately compared to just 38% in 2010. The percentage of women over 50 not saving at all for their retirement has increased from 22% last year to 26% this year, suggesting that they are starting to give up on pensions savings altogether. This is in sharp contrast to men of this age, 60% of men over 50 are saving adequately for retirement.
Impact of the economic downturn
The economic downturn has also affected people's attitudes to savings, as well as their ability to save. Two fifths of people (41%) have saved less for retirement because of the economic downturn. Nearly a third (32%) of people with a pension and not retired believe the economic downturn has affected the size of their pension pot to a great extent, and 18% say the recession has put retirement lower on their list of priorities. Almost half of people (45%) feel worse off than a year ago and 20% saved less than they had done previously in the last 12 months, revealing savers have had to tighten their purse strings because of the recession.
For many it is unlikely to get any better in the near future. Although 25% of people with a pension and not retired want to save more for retirement, 29% can't save anymore than they currently are. Over half of people (54%) who haven't saved into a private pension scheme have not done so simply because they can't afford it and 38% don't think they will ever save into a private pension.
Ian Naismith, Head of Pensions Market Development, Scottish Widows comments: "It is a worrying sign that the group most vulnerable when it comes to retirement savings is women over 50. While women's career patterns often make it hard to save consistently for retirement, this is the time when they should be saving the most. The last two years have been hard on everyone who is trying to save for their future. Whether it's worries about job insecurities or the decline in DB schemes, those that could and should save need to try and make more of an effort to plan for their retirement years. The whole nation is feeling worse off than a year ago and this is really starting to take its toll on pensions savings, but instead of putting people off saving, the economic downturn should have been the trigger that everyone needed to save more."
Pensions Confidence
Traditionally those with final salary schemes (defined benefit) schemes have been guaranteed a comfortable retirement but confidence in these schemes has started to drop. Amongst those with defined benefit schemes (who were not retired), 42% felt confident that their scheme would deliver as planned when they retired compared to 49% last year. Just 70% of those with a DB scheme expect it to provide their main income in retirement, compared to 78% last year1.
The Scottish Widows UK Pensions Report 2010 reveals that someone saving adequately for retirement is likely to be:
Male - Almost two thirds of the adequate savers (63.4%) are men
Working in the public sector - 41% of those saving adequately are public sector workers despite making up only a third of the work force
A high earner - 56% of those earning £30,000 to £50,000 are saving adequately
By comparison a non-saver is more likely to be:
Female - 25% of women are non-savers compared to 19% of men
A parent - 29% of parents with three children or more are non-savers
Self employed - 29% of self-employed people in the index group are saving nothing for retirement compared to 21% overall
Ian Naismith, concludes: "Our definitive Pensions Index and Average Savings Ratio have revealed year on year increases in pensions savings, but the effect of the credit crunch has handed a blow to the nation and this has led to a decline in saving for retirement. Those who are members of DB schemes have also suffered, and with companies increasingly closing these schemes and many employers struggling to provide adequate pension provision for their employees we can expect this trend to continue. For those that are able to put more aside for their retirement, we recommend they save 12% of their income to ensure that they have a comfortable retirement. The lesson that we have all learnt from the last two years is the importance of putting something aside for the future, we hope that while pensions savings have taken a significant dip this year they will start to rise again as the nation wakes up to the need to save for retirement."