The number of women retiring without a pension has dropped, new research shows, but nearly 14 per cent of people have not made provisions for their retirement, highlighting the significance of the state pension for savers.
A survey conducted by Prudential found that one in seven people retiring this year “have not made provisions for their retirement”, including 11 per cent who will be “either totally or somewhat reliant” on the state pension, but has also shown that women's pension provision has improved slightly.
We need to raise trust in the industry to encourage take-up and avoid people arriving at retirement with only state pension
Alistair Byrne, State Street Global Advisors
The number of women retiring without a workplace or private pension has decreased somewhat from nearly a quarter (22 per cent) in 2016, but 19 per cent of women will still be retiring in 2017 without a pension, compared with 9 per cent of men.
Vince Smith-Hughes, head of business development and technical at Prudential, explained the gap saying women's pensions have been affected by different work patterns, and this has “not only often reduced their state pension, but it’s also reduced their ability to continue to contribute into personal pensions or partake in occupational pensions”.
Saving as early and as much as possible
For those people retiring this year, he said about a third of their retirement income is made up of the state pension and about one in seven are totally reliant on the state pension.
The new state pension is due to rise next month, so a pensioner retiring after April 6 2017 and relying solely on the new flat-rate state pension would have an income of nearly £8,300 a year.
Smith-Hughes said that although the state pension is a valuable source of retirement income, some people are “over-reliant on it”, despite the fact that “it’s not going to provide you with much more than a subsistence level of existence when you get into retirement”.
He added that this is why there needs to be emphasis on the importance of joining an occupational pension scheme where available and “save as much as possible as early as possible”.
There are still gaps to fill
Ros Altmann, former pensions minister, said: “These figures once again illustrate the importance of helping people save for retirement”.
However, she noted that “as auto-enrolment spreads across the workforce, the fact that only those earning over £10,000 will be put into a pension and receive an employer contribution means that more women than men will continue to lose out in future”.
Alistair Byrne, head of European DC investment strategy at investment manager State Street Global Advisors, said that although auto-enrolment “is making great strides in terms of raising the proportion of employees with a pension”, there are still gaps in coverage.
He explained that those affected included low earners, people with multiple part-time jobs and the self-employed. “Some of these gaps, for example in relation to part-time work, will disproportionately affect women,” he said.
While the government’s 2017 auto-enrolment review is looking to tackle these issues, “more generally, we need to keep making pension saving clearer and easier to understand, and to raise trust in the industry to encourage take-up and avoid people arriving at retirement with only state pension”, said Byrne.
Relying on the state pension
Nathan Long, senior pension analyst at platform provider Hargreaves Lansdown, sees the state pension “as a crucial foundation to everyone’s retirement planning”.
Hollis: Bring invisible women into AE system
The UK’s pension system is failing “invisible women” who do not meet the auto-enrolment earnings threshold and are punished for leaving work to care for children, Labour peer Patricia Hollis has warned.
While Prudential's research shows that 11 per cent of people will be either totally or somewhat reliant on the state pension, Long said he was surprised that this figure was so low.
“Most people, when they reach retirement... are reliant on the state pension to a certain extent to form the bedrock of their income,” he said, noting that he would therefore have expected this figure to be higher.
Daniela Silcock, head of policy research at the Pensions Policy Institute, agreed that the 11 per cent figure seemed “quite low” because “the state pension is going to be supplementing the retirement income of the vast majority of people” and “unless you’re incredibly wealthy, you’ll be partly reliant on it”.
Silcock pointed out that it is “not a bad thing” to be partly reliant on the state pension as that is what it is there for. “It’s a safety net that we all pay into during working life so that we will have something to fall back on in retirement.”
