Pension warning as Britons face ‘ticking time bomb’ when it comes to understanding savings
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Pensions can provide a cushion for retirement, allowing people to achieve certain goals once they have left the workforce. Preparing for retirement is key, as life expectancy increases and the cost of living rises. But research has found Britons are on a cliff edge when it comes to their retirement finances, and failing to take action to remedy the situation could be disastrous.
A report undertaken by online pension provider PensionBee, and Plaid, an Open Banking data network, revealed a severe lack of engagement with pension saving.
While many Britons are saving towards their retirement, there is generally a failure to understand what people are actually putting away.
Almost 60 percent of pension savers were found to not know their current pension balance – potentially leaving them to face financial shortfalls in the future.
In addition, 80 percent of those asked were found to leave their pension behind when they switch jobs.
This may be an issue, the organisation states, as there is no guarantee the government will support them in the long run.
PensionBee has said that pensions are the most commonly misunderstood financial product.
However, a lack of understanding could cause chaos in the long-term as pension funds are often the key source of income for retired people.
To combat the problem, the report has suggested the concept of open finance – which guarantees consumers access to their own financial data.
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Open pensions, it is said, could help Britons to better understand their finances and plan towards a comfortable retirement.
Assisting people in the quest to find any lost pensions they may have is likely to improve their finances, and help them build up a more substantial pot for later life.
And PensionBee has said the concept may even be a better option than the government-backed Pensions Dashboard, as it can bring more immediate value to savers.
PensionBee and Plaid have now called on the FCA to recognise the need for Open Pensions and the Pensions Dashboard for different groups of people.
Clare Reilly, Head of Corporate Development at PensionBee, commented on the worrying news surrounding pension understanding.
She said: “Lack of engagement with pensions is a ticking time bomb for UK society.
“If we don’t address this early enough, millions of people could retire into poverty with no guarantees the state can support them.
“Pension are the biggest financial asset people have after a home and the only vertical where making a small change now can have a big impact later.
“By mandating pensions to go first in Open Finance, the FCA can bring the urgent regulatory intervention savers need, in a data format they understand, early enough to make a difference.”
Auto-enrolment into workplace pensions has meant many more people stand to benefit from saving throughout their working lifetime.
However, there could also be a low level of engagement here, and inertia, as active saving does not have to take place.
The Money Advice Service states all pension arrangements, whether personal or through the workplace, should be monitored regularly.
If a person finds their pension is not on track to meet the goals they set for their retirement, then they are also encouraged to take action to remedy this.
And Britons can also gain understanding of their state pension entitlement – another source of income for retirement.
The government has developed a tool accessible through their official website which can help people understand what they are scheduled to receive from the state pension and when.
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