Tackling the UK’s savings gap

elderly couple

An ageing population poses considerable issues for any economy. Nowhere is that truer than here in the UK.  According to the World Economic Forum (WEF), the UK should be preparing right now for a workforce composed of 80-year-olds and be imposing faster rises in pension age to avoid a £25tn pensions savings gap from opening up.

The WEF has likened the global pensions crisis to the threat of climate change in its capacity to have a major impact on the lives of many people.

The causes of the gap aren’t hard to find: falling birth rates, an ageing population and a widespread disinclination or inability to save, head the list.  The gap is defined as the shortfall in the amount of money needed by a pensioner to maintain their income at a figure equal to 70% of their pre-retirement earnings. If pensioners haven’t accumulated enough money in their workplace, private and state pensions, then the gap will widen further.

Interestingly, the WEF report said that the UK’s lifetime allowance, which caps tax relief on pension contributions, should be scrapped as it was in danger of sending the wrong signal by encouraging the belief that there is only so much you should contribute to your pension.

Another recent study this time by the Organisation for Economic Cooperation and Development (OECD) calculated that a typical British worker will at retirement receive a state pension and other benefits worth just 29% of what they had previously been earning.  That compares with an average of 63% in other OECD countries, and more than 80% in Italy and the Netherlands.

When voluntary pensions are included, the average UK pensioner receives 62% of his or her working income.  This is still lower than the OECD average of 69%.

Pension planning

Retirement should be enjoyed rather than endured.  Whatever age you are now and however near or far away from retirement you may presently be, you are strongly advised to keep your retirement plan under regular review, and to contribute as much as you possibly can to your pension throughout your working life.

Here are three simple steps that will help you avoid falling into the pensions gap:

  • Speak to an Independent Financial Adviser about arranging a regular review to ensure your retirement plans remain on track.
  • Consider topping up your contributions whenever your financial circumstances allow; remember, within limits, they attract valuable tax relief.
  • Know your state pension age and get a forecast of how much you’ll receive.