Poorly performing pension Equity Release is the answer

Are you ready to pay for your longest holiday?

An excellent piece in the FT today, it really is time to have a serious conversation about using housing wealth to supplement these pension issues.

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Have you started planning your summer holiday? The average Brit, it is said, spends as much time researching and planning a holiday as they do enjoying it.
What concerns me is that most people spend far less time planning for life’s longest holiday — retirement.

A week or two in the sun is a wonderful thing but retirement could last decades. The British public, however, “would rather vacuum or change the sheets than review their pension” according to a survey by Aviva.

Maybe, years ago, your parents or your boss encouraged you to save into a pension. Today, automatic enrolment has nudged 9.6m workers into saving for retirement (with the help of 1.2m employers).

As a nation, we have made an important first step towards retirement saving. What’s more, we understand why this is important.

In the 2016 British Social Attitudes Study, 80 per cent of people said it was worthwhile to pay into a workplace pension and 78 per cent said it was normal for someone like them to save for retirement.

The encouraging news is that there are 2m fewer “undersavers” than in 2012, when auto-enrolment began. Six years ago, those aged 22 to 29 were least likely to save but the number of pension savers has risen threefold to 63 per cent.

But let’s be realistic. Auto-enrolment savings are a good start, but many of us will need to make extra contributions to top them up. You should plan and save for this as early as possible.

There are so many demands on our time, however, that pension planning is often pushed to the back of the queue. Women with young children apparently have less than 17 minutes of “me time” a day.

At work, we are overloaded with information. One study by the University of California, San Diego estimated that the average person is on the receiving end of more than 100,000 words a day, equivalent to 34GB of data.

Being able to afford to save is another challenge. Average household savings are low — and unsecured household debt is rising.

There are still 12m people undersaving for retirement, equivalent to 38 per cent of the working population. About half of these are “mild undersavers”, meaning they are expected to reach 80 per cent or more of their ‘target’ retirement income, known as the replacement ratio.

What may surprise many readers is that nearly 90 per cent of undersavers earn more than £25,000 a year. For this group, the state pension (worth £8,500 a year at most) represents a lower proportion of their earnings.

When approaching retirement, the question most people ask is: “How much is enough?”

Don’t wait until your 50s or 60s to figure out when (and if) you can afford to retire. Long before this, you should be asking: “Am I saving enough for the type of retirement I want?”

The Pensions and Lifetime Savings Association consulted on this topic last year.

One interesting example came from Australia, where people are pushed to think about retirement by comparing what they could buy on the “age pension” (their state pension) compared with a “modest” or “comfortable” retirement income.

On the age pension it is suggested you will drink only home brew, have your hair cut by a friend, and do without a car. If you are “comfortable”, however, you will drink wine, have regular salon haircuts and run a reasonable car. They then show the income that’s needed to fund each lifestyle.

It is a great way to start the important conversation about how much you need to be saving for retirement. How can we get more people to talk about it in Britain?

The pensions and savings industry can do more by removing jargon and making communications shorter and simpler, giving busy people a greater chance of understanding their savings.

Perhaps Gogglebox, the Channel 4 show, could provide some inspiration? Different people from all parts of the country are filmed sitting on their sofas, commenting on a range of television programmes, some of which feature complex issues.

Whether it is Gogglebox “stars” Jenny and Lee, Ellie and Izzi or the Siddiqui family, they make sense of the news and relate it to everyday life. As commentators, they are simple, engaging and bring the conversation into our living rooms.

Could more of us have a Gogglebox-type conversation about pensions with family and friends, drawing on the experience of older relatives as we talk about the need to save?

There are several places where you can find out more, including the Money Advice Service and the Pensions Advisory Service. If you are over 50 you can also talk through your options with the government’s free Pension Wise service. This could be the start of a more formal conversation with your pension provider or an independent financial adviser.

The holiday planning, vacuuming and changing the bed can wait — we need to make time to talk about retirement.

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