- Two in five say money is the issue most affecting their mental health
- One in three have experienced a negative financial shock in past three years
- Some 58% of adults aged under 66 have had to stop saving or save less
Nearly one in three people are spending savings or pensions sooner than planned to keep up with household bills, new research suggests.
More than half of adults of all ages say the rising cost of living is their most pressing financial worry, followed by running out of money and not saving enough for old age.
Two out of five said money is the issue most affecting their mental health, and one in three experienced a negative shock to their finances over the past three years, according to an annual pension survey by Interactive Investor.
More than half of adults say the rising cost of living is their most pressing financial worry
The research, which saw 9,000 people questioned about their finances, was published after official data showing the inflation rate remained at 6.7 per cent for the second month in a row.
The most common events threatening people’s finances are their own or a family member’s illness, followed by redundancy and caring responsibilities.
Interactive Investor found 58 per cent of adults aged under 66 have had to stop saving or save less, and nearly one in four would like to save more into a pension but cannot afford the extra contributions.
‘The cost-of-living crisis is undermining retirement futures. It is strangling retirement savings,’ says Alice Guy, head of pensions and savings at II.
‘It is forcing people to postpone their retirement dreams. And it is causing many savers – whether retired or not – to look anxiously at their pensions and savings, worrying if they will be enough. Most of us are being affected in some way.’
But Guy points to a couple of positive findings, saying: ‘In general, older people appear to have been less affected by the cost-of-living crisis than younger generations.
‘Most have paid off their mortgages, many have built decent retirement savings pots, and they all enjoy the benefit of the triple lock on the state pension element of their retirement income.’
STEVE WEBB ANSWERS YOUR PENSION QUESTIONS
Meanwhile, nearly four in five adults have a pension, rising to nine in 10 people who work full time.
Guy adds: ‘Far from being a generational battle, we are all on the same side, with many parents and grandparents making sacrifices to help the next generation and giving generous “living inheritances” to their loved ones.
‘For the fortunate, parents and grandparents can do their bit to rebalance the inequalities, but it takes public policy action, too.’
II called on the Government to consider a range of measures to help people improve their finances. These include:
– Keeping the triple lock but reforming the way it is applied to a smoothed measure, rather than focusing discussions on its removal
– Introducing earlier state pension entitlement for those with age-related health problems
– Considering increasing minimum pension contributions under auto-enrolment from a total 8 per cent – 4 per cent personal, 3 per cent from an employer and 1 per cent tax relief – to 12 per cent, with an ambition to raise this to 15 per cent in the future
– Improving financial and pension education in schools, and launching a public education campaign on retirement, focusing on key decisions like how long a pension needs to last and the impact of withdrawing too much
– Distributing ‘wake-up packs’ at life stages like starting work, the birth of a first child, age 40, age 50 and key retirement dates, with a one-page summary document
– Helping older generations to assist younger family members by increasing the £3,000 annual limit on giving away gifts without incurring inheritance tax, and introducing a higher capital gains tax annual exemption on gifts
– Raising the £325,000 inheritance tax nil rate band in line with inflation, and reforming the extra £175,000 residence nil rate band to cover those with no children and renters.
How to sort out your pension if you fear it’s falling short
1) If you are worried about whether you will have saved enough, investigate your existing pensions. Broadly speaking, you need to ask schemes the following questions.
– The current fund value.
– The current transfer value – because there might be a penalty to move.
– Whether the pension is in a final salary or defined contribution scheme. Defined contribution pensions take contributions from both employer and employee and invest them to provide a pot of money at retirement.
Unless you work in the public sector, they have now mostly replaced more generous gold-plated defined benefit – career average or final salary – pensions, which provide a guaranteed income after retirement until you die.
Defined contribution pensions are stingier and savers bear the investment risk, rather than employers.
– If there are any guarantees – for instance, a guaranteed annuity rate – and if you would lose them if you moved the fund.
– The pension projection at retirement age. You can use a pension calculator to see if you will have enough – these are widely available online.
2) You should add the forecast figures to what you anticipate getting in state pension, which is currently £203.85 a week or around £10,600 a year if you qualify for the full new rate. Get a state pension forecast here.
3) If you are tempted to merge your old pensions, read our guide first to ensure you won’t be penalised.
4) If you have lost track of old pots, the Government’s free pension tracing service is here.
Take care if you do an online search for the Pension Tracing Service as many companies using similar names will pop up in the results.
These will also offer to look for your pension, but try to charge or flog you other services, and could be fraudulent.
