Funding retirement continues to be biggest money worry for UK employees

  • More than a third (34%) of UK employees named funding retirement as their top money worry
  • One in five employees (21%) admit to worrying about their financial health daily
  • 87% of UK employees think it’s important to save into a pension and in light of the pandemic, over 10% of employees plan to save more into their personal and workplace pensions
  • But more than a quarter (27%) thinking that auto-enrolment solves their retirement money worries

Funding retirement is the biggest money worry for UK employees for the second year running, according to the new Changing Trends of Financial Wellbeing report from Close Brothers.

More than a third (34%) of UK employees named funding retirement as their top money worry, with the issue coming out on top for the second year running following the 2019 Financial Wellbeing Index report. One in five employees (21%) admit to worrying about their financial health daily, with only 19% not worrying at all. The top money worries in the UK are funding retirement (34%), being able to cope financially with a job loss (24%), paying off debts (23%), the state of the economy in general (22%), and how to make money last till payday (16%).

Top money worries in the UK 2019 vs 2020
2019 Financial Wellbeing Index2020 Changing Trends of Financial Wellbeing
Funding their retirement (31%)Funding their retirement (34%)
Paying off their debt (27%)Being able to cope financially with a job loss (24%),
Coping financially if they see a reduction in household income (23%)Paying off their debt (23%)
How to make their money last until payday (19%)The state of the economy in general (22%),
The state of the economy in general (19%)How to make money last till payday (16%).

Financial confidence around retirement has increased on an annual basis, from an average score of 5/10 last year to a score of 5.9/10 today. This score has increased across men (5.7 to 6.5), women (4.2 to 5.4) and those over 55 (6.2 to 6.6). However, 44% of those aged 65+ identify funding their retirement as one of their biggest money worries, and 50% of those 55-64 – this latter group being the most concerned of any age group.

For those who gave a score below 5/10, Close Brothers asked how long it would take for them to feel confident in funding their retirement. Concerningly, 46% admit they don’t think they’ll ever be confident, and among those approaching retirement (aged 55+) who are struggling, 62% don’t think this can be resolved.

Delving into the nation’s retirement saving strategy, workers ranked the best savings methods for retirement to be a workplace pension (70%), property (58%), a savings account (55%), a Cash ISA (52%), and savings or investment bonds (42%).

Just 61% of employees in big businesses are saving for their retirement using a workplace pension, a figure which rises to three quarters (75%) of those 55+. 45% of employees are saving for retirement using a simple savings account, and 34% with a current account – only 17% are investing in stocks and shares, with 15% in an Investment ISA. 

Which products/assets do you currently have/use to save for retirement?
Ages 18-34Ages 35-54Ages 55+
Workplace Pension (44%)Workplace Pension (67%)Workplace Pension (75%)
Savings account (39%)Savings account (43%)Savings account (59%)
Current account (26%)Current account (33%)Current account (47%)
Cash ISA (24%)Cash ISA (31%)Cash ISA (42%)
Property (15%)Property (26%)Property (31%)
Stocks & shares (13%)Stocks & shares (17%)Stocks & shares (21%)
Investment ISA (13%)Investment ISA (16%)Investment ISA (17%)

88% of employees say that they save into their pension, even if rarely, while 39% save the maximum they can afford on a consistent basis. This rises to almost half (47%) of those aged 55 and over. Reflecting the incentive offered by auto-enrolment, a third (31%) of employees save the minimum amount necessary in order to take advantage of employer matching. 8% of employees are doing nothing to save for their retirement, which rises to 16% among those age 18-24.

The appetite for retirement saving surpasses the reality of it; 87% of UK employees think it’s important to save into a pension. ‘Gen Z’, aged 18-24, think it’s more important to save into a pension than their 25-34 year old millennial counterparts, at 51% compared to 44%. There are also unreal expectations that need to be addressed; more than a quarter of employees (27%) thinking that auto-enrolment solves retirement money worries, rising to 34% of those employees aged 18-34.

Covid-19

More than half (54%) of workers in large businesses felt financially prepared for Coronavirus, significantly higher than the 44% of average UK adults. 50% of employees plan to enhance their financial preparedness, with around a quarter already having made changes (24%) and a comparable proportion looking to make changes in the near future (26%).

Of the people planning to make changes to their financial planning, there’s some good news for retirement savings. 13% of employees plan to save more into their personal pension in light of the pandemic, and 11% will increase their contribution to their workplace pension.

But it’s not all positive. 8% will save less into their personal pension in order to access cash now, and even more concerningly 7% plan to opt out of auto-enrolment.

Investigating the detail, men are more likely to make these big decisions than women – they’re both more likely to increase their personal pension (16% versus 10%) and workplace pension (13% versus 8%), and also to save less into their personal pension (9% versus 8%) or opt out of auto-enrolment (10% compared to 4%). Women are instead more likely to make more day-to-day changes like keeping a closer eye on standard spending or saving more into an emergency fund.

Worryingly for today’s gig economy, contractors and gig economy workers are far more likely to have reduced the amount they’re saving for retirement in light of Covid-19, at 11% vs 5% of employees of a company/ organisation.

Jeanette Makings, Head of Financial Education at Close Brothers said: ”Since the introduction of auto enrolment in 2012 and the huge amount of added focus on the need for pension savings and retirement planning since then, it is concerning that retirement still tops the list of money worries. This is unlikely to abate in the short term given the current uncertain economic climate. While it’s good news that financial confidence around retirement has increased since last year, the UK’s pension problem looms larger than ever, with Covid-19 having led to a dent in the market and so people’s pensions and other savings. Against such a backdrop, it’s vital that people take stock of their financial futures and see what steps they can take to adjust their plans to meet their short, medium, and long-term goals. 

“Employers have a key role to play in supporting employees to understand and make good retirement planning choices throughout their career as well as when approaching retirement. Employers have to provide a workplace pension, so the addition of education and continued pension engagement to help employees understand and make the most of this valuable benefit will reduce employee money worries, increase financial security and enhance their employee value proposition. And this is just as vital for employees joining their first workplace as it is to those at the point of retirement. It’s heartening to see that over half of ‘Gen Z’ employees believe it is important to save into their pension, and with the correct guidance from day one, organisations can support this generation to improve their retirement outlook throughout their career. Additionally, with our research highlighting a lack of confidence in workers approaching retirement age, focussed support in the countdown to retirement and specific education and advice at retirement are vital to engage this age group and their retirement planning.”

Author: Editorial Team

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