More than one in three have no pension plans at all

Pensions crisis on the horizon

Updated: 

Mature woman sitting on sofa, looking away in thought

Shocking new statistics have revealed that not only are nine in ten people in the UK going to fall short of their retirement plans, but 39% have completely failed to make any plans at all. There's a very real risk these people will enter retirement in terrible financial difficulties.

So how did we end up in such a dire state?

The figures come from retirement planning company Aegon, which carried out a study of Global Retirement Readiness to find out how prepared people were for their retirement. In the UK only 15% of people are confident of a comfortable retirement - compared to 41% in China, 37% in India, 28% in the US, and 21% in the Netherlands. And when the company assessed how ready they really were, they ranked the UK as less prepared than those in India, Brazil, China, the US and Germany.

Why?

The report blames a number of factors. By far the biggest is the decline in company pensions. Until the mid-1980s your employer could force you to join the company pension scheme - and by far the majority of these were defined benefit plans (otherwise known as final salary pensions). It means that people working then tended to have been saving into a decent pension as a default.

In 1986, people were given the right to choose whether or not to join, and at the same time personal pensions came into being. This created the mi-selling scandal which saw so many switched from good final salary schemes into poorer personal plans.

In the intervening years, competitive pressures and accounting rule changes have made it increasingly expensive for employers to offer final salary schemes, so they started to switching defined contribution schemes - which instead of offering a fixed pension on retirement, saved a sum over your working life for you to secure a pension with on retirement. By 1997 only a third of employers offered final salary schemes, and since then the figure has plummeted to just 8%.

Meanwhile, because employees had to choose to join pension schemes, an increasing number of them failed to do so, so membership of these schemes dwindled. In the late 1960s more than 12 million people were a member of their company pension scheme, in 2011 this had fallen to around 8 million.

Solution?

From October 2012 the government's efforts to undo the damage started to come into effect - auto-enrolment. Under this scheme employees are automatically enrolled into a defined contribution scheme - into which employees and the employer both pay. However, this is only gradually being rolled out, so many won't be enrolled until 2017.

This will drag more people into pensions, but has a number of failings: the lowest earners will not be included, neither will those who change employers regularly or those who opt out. Even for those who join the scheme, the experts warn that the minimum level at which the contributions are set fall far short of the amount required to secure them a comfortable income in retirement.

It means that millions of people have not been saving enough. And the experts emphasise that the only possible solution at the moment lies with you. You are the only person who can put money aside for retirement and the only one who can ensure you have done enough, early enough, to meet your retirement expectations.

Clearly a combination of legislation, mis-selling and companies closing schemes helped to get us in this terrible pensions mess: but it's only you who can get yourself out of it.

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