The Institute for Fiscal Studies (IFS) is planning
a comprehensive pensions review, in partnership with the Abrdn Financial
Fairness Trust, following research which highlighted concerns about the
"substantial risks" facing future generations of pensioners.
Recent
research from the IFS revealed that 60 per cent of middle-earning private
sector employees who are contributing to a pension are saving less than 8 per
cent of their earnings, and nearly 90 per cent are saving less than the 15 per
cent of earnings previously recommended by Lord Turner’s Pensions Commission.
Additionally,
the IFS said almost all of this saving is coming in the form of “defined
contribution” (DC) pensions, which leave individuals, rather than their
employers, exposed to market and other risks that may be difficult to manage.
The
IFS warned that those retiring with DC pots face considerable difficulty and
risk in managing their finances through retirement, with risks around running
out of private resources or savers being so cautious that they have a
needlessly austere retirement.
The
report also noted that an increasing number of those approaching retirement
live in more expensive, insecure, private rented accommodation, warning that
this could lead to a combination of a disappointingly low standard of living in
retirement and/or greater reliance on housing benefit.
Summary
·
The
Institute for Fiscal Studies (IFS) has announced plans for a comprehensive
pensions review.
·
The
multi-year review will examine the effects of changing economic conditions and
public policies on the future of financial security in retirement, including
how these effects differ by gender, ethnicity and across the UK.
·
The
review will also consider the impact of changing demographics and longevity
trends, as well as the impact on self-employed workers.
·
Reports
will be shared over the next two years, with concrete recommendations and
options for reform to be presented in Summer 2025.
·
IFS
research revealed that 60% of middle-earning private sector employees who are
contributing to a pension are saving less than 8% of their earnings.
Additionally, nearly 90% are saving less than the 15% of earnings previously
recommended by Lord Turner’s Pensions Commission.
·
The
review will also consider the risk facing future generations of pensioners and
the risk that too many are saving too little for retirement.
·
The
Pensions Regulator welcomed the plans for the review and will support the
development of industry-led solutions to help ensure people have financial
security in retirement.
Here are seven ways to retire financially
free:
1.
Start
Saving Early: The earlier you start saving for retirement, the more time your
money has to grow. You can use tax-advantaged retirement accounts/plans to
maximize your savings potential.
2.
Live
Below Your Means: Live a modest lifestyle and avoid overspending on unnecessary
items. Create a budget and stick to it, and consider downsizing or relocating
to a lower cost of living area.
3.
Invest
Wisely: Invest your money wisely in a diversified portfolio of stocks, bonds,
and other assets. Consider consulting with a financial advisor to help you
create an investment strategy that aligns with your risk tolerance and goals.
4.
Maximize
Your Income: Consider ways to increase your income, such as taking on a side
job or starting a small business. Maximize your earning potential by developing
new skills, pursuing advanced education, or seeking a higher-paying job.
5.
Pay Off
Debt: Avoid carrying high-interest debt, such as credit card debt, into
retirement. Pay off your debts as soon as possible to reduce your financial
obligations and free up money for savings.
6.
Plan
for Healthcare Costs: Healthcare costs can be a significant expense in
retirement. Consider purchasing long-term care insurance or a supplemental
health insurance policy to help cover these costs.
7.
Have a
Retirement Plan: Develop a retirement plan that takes into account your goals,
income, and savings. Monitor your plan regularly and make adjustments as needed
to ensure that you stay on track to meet your retirement goals.
Millions of people have
lost faith in the complex and muddled pensions system, preferring to do their
own thing by investing in things like buy-to-let property, business or trading
directly on the stock market.
Whilst this can work
for some, ignoring the many benefits of pension investing, such as tax relief,
carries risk.
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