Pension preparation is often considered the key to a comfortable retirement. With working life usually taking a toll, many will look forward to leaving the workforce for retirement, and could have specific goals in mind. Whether individuals do or not, what is inevitable is the cost of living, which is also an important consideration.
However, research has shown many Britons are failing to amply prepare for their life post-work, and could be at serious risk as a result.
Research from Legal and General Investment Management (LGIM) and NMG Consulting, has warned of a ticking time bomb facing people at retirement.
A survey found 66 percent of those saving into a defined contribution pensions currently have no firm plans or no plans at all for their finances in retirement.
This was coupled with 58 percent of those who have already retired stating they do not have any plans.
“Consumers lack knowledge and show over-stated confidence in their abilities to make good decisions and this is likely to have consequences on their outcomes in retirement for many years.”
While the study showed Britons are clued up about the 25 percent tax-free lump sum available through defined contribution pensions, there are some other areas where there is less confidence.
More than a third of prospective drawdown users said they knew nothing about the funds they are currently invested in for their pension.
An additional third said they were unsure about this topic, creating concern for pensions experts.
Failure to understand the complexities which could arise in a pension arrangement could be devastating for savers.
For those using a drawdown, it will be their personal responsibility to ensure they have enough to spread over their retirement.
Not doing so could mean Britons run out of money sooner than they expected and thus ‘outlive’ their pension.
Indeed, as Ms Craig states, being over-confident about savings for retirement could lead to disappointment later when it comes to fulfilling retirement goals.
Emma Douglas, Head of Defined Contribution at LGIM, also commented on the findings.
She said: “Pension freedoms are already approaching their five-year anniversary, but the long term consequences are just starting to come through.
“As DC pension pots grow, the decisions made by individuals as they near their retirement could have significant consequences for their finances and standard of living.
“Increasingly a ‘good member outcome’ is not only about helping members to build up as much as possible in their pot in the accumulation phase, but also about giving them the right options and help when it comes to spending this money.”