Friends First Pension Study
The Friends First 2016 Pension Index, annual pension research published by the leading pension and investment company, reveals that 1 in 4 (27%) of all adults don’t know how much the State pension is.
Despite the fact that almost half of the adult population (44%) will depend on the State pension as their only form of income in retirement, the lack of understanding about how much income the State pension provides rises to over one in three (35%) amongst those without a private pension.
The vast majority of those without a private pension (73%) stated that they are not confident of having sufficient income at retirement.
As regards private pension ownership, this remains steady at 45% with the majority of people having made no change to their contributions in the past year.
For the first time, the Friends First 2016 Pension Index conducted a cost of living analysis to compare the cost of living now to people’s expected cost of living in retirement to uncover the gap between perceived financial comfort and the likely reality in retirement (see table below).
This Friends First cost of living analysis reveals that:
- People expect their cost of living to half when they reach their golden years
- The average cost of living of €19,865 now (€380 per week) is expected to reduce to €9,810 (€188 per week) in retirement
- For the 1 in 2 that will be dependent on the State pension of €11,960 per year (€230 per week), this leaves a disposable income of just €40 per week which could stretch to a coffee and a newspaper every day
- The only area of income people expect to increase in retirement is health costs / health insurance, going from an average of €729 per annum to €982
- When focusing on expected income and expenditure in retirement it is clear that those with a private pension are also over-estimating the level of income their current funding might provide. The respondents average annual pension contribution was €2,946 whereas the average retirement income they expect their private pension to produce is a whopping €19,666 a year.
Commenting on the research, Simon Hoffman, Director of Pensions and Investments with Friends First, said: “Although there has been no real change in private pension coverage levels our research has highlighted two real issues which we urge people to address. It is very clear that there is a huge gap in knowledge when people are setting out their pension goals, with many looking at unrealistic expectations as to what their contributions will deliver at retirement. In conjunction, there needs to be a greater understanding of the role the State pension plays in an individual’s overall pension planning.”
“We are seeing in the study that people are living increasingly busy lives and their focus is less on securing their financial future and more on short to medium term needs. But, sleep walking into retirement can only lead to a rude awakening. Not only is there is a critical need for people to start a pension, it is vital that they are fully engaged with their pension planning and management on an ongoing basis in order to achieve their financial goals in their golden years,” concluded Mr. Hoffman.
Additional findings from the study are:
- When asked about financial priorities, the top priority for 1 in 3 (33%) was to save for the short to medium term. Long term pension planning ranked below saving for a holiday (15%) and making home improvements (25%).
- Only 1 in 3 (36%) see obtaining a pension as a high or medium priority but almost half of people (45%) still say affordability is the main barrier.
- Only 30% of adults believe they would find it comfortable living on the current State pension.
- Half of those in the study have experienced some improvement in household income in the past year with the shift mainly related to wage increases.
- Optimism for retirement prevailed amongst 25-34 year olds, with 1 in 3 predicting they will have sufficient funds in retirement, despite being the least likely age group of those surveyed to own a private pension (37%). 2 in 5 (38%) of this group are confident they can maintain their lifestyle on the State pension.
