One third of adults have less than £10,000 in their pension

A large chunk of the UK population is setting themselves up for a nasty shock later in life by not putting enough money away for the future.

The newly published Financial Lives survey by the Financial Conduct Authority (FCA), a financial regulator, implies that certain people will be too reliant on the state pension to pay the bills and support their lifestyle once entering retirement. The full state pension currently adds up to £11,973 a year and while that should help keep a roof over your head, it doesn’t leave money for life’s luxuries.

Certain people use a combination of the state pension, workplace pensions and personal pensions to fund their retirement, together with cash savings and ISA investments. Unfortunately, not everyone is in a position to draw from a range of accounts. Individuals might only have a tiny nest egg by the time they retire.

The FCA’s survey shows that one third of adults have less than £10,000 saved in their pension, which is worrying. That’s not such an issue if they’re in their twenties or early thirties and have decades ahead to put money away, but it’s troubling if someone who is in their forties, fifties or early sixties is in this situation. It’s vital that people have the support they need to squirrel away as much as they can while they’re still working.

Reforms such as ‘targeted support’, currently being prioritised by government and the FCA, should help. These reforms have the potential to enable people to make better-informed decisions about saving and investing, boosting financial resilience and supporting the FCA’s push for providers to deliver good outcomes for customers. The economy should also be a substantial beneficiary if these reforms help spearhead a retail investing revolution in the UK.

It might feel as if everyday life is already putting big demands on your money and that it’s hard to deal with the here and now, let alone prepare financially for years down the line. The cost of living has gone up and individuals often have limited money after payday once they pay their bills. However, kicking your retirement saving down the road could be a grave mistake. Every little extra you can put away now could make a significant difference to the life you can afford to live in your golden years.

There are steps you can do take to help get your finances in order.

1. Pay more into your workplace pension. At least 8% of your salary must go into a workplace scheme under auto-enrolment rules; half from you, 3% of your salary from your employer and the equivalent of 1% from the government. This just a minimum and employers often pay more if you also increase your contribution. Check to see if your employer offers more generous contribution rates if you have chip in more. This is effectively free money to give your pension a boost. Self-employed individuals do not qualify for auto-enrolment but they can still use a self-invested personal pension (SIPP) or a Lifetime ISA to save for retirement and enjoy top-ups from the government in the form of tax relief and bonuses, respectively.
2. Pay more into your personal pension. Anyone who manages their own pension and is still in employment should think about digging a little deeper into their pocket. Even an extra £30 to £50 a month could put a smile on your face in retirement. You might be sacrificing a night in the pub or a meal out, yet this money could grow in value over the coming years and fund multiple nights out down the line. Sacrifice now and celebrate later.
3. Consolidate pensions. If you’ve had multiple jobs during your working life, it’s easy to build up a range of pensions with different employers. Combining these into a single pot makes sense from a time management perspective and you might also be able to save on costs. Having a single pot means you can have a clear focus on what you’ve got and how you’re going to hit your goals.
4. Shop around for more financial-related products and services than just home and motor insurance and mortgages. The idea that someone goes with the first financial adviser or motor finance deal that comes along is troubling. It could leave people open to paying through the roof and getting bad value for money.
5. Try to avoid relying on credit. The FCA’s Financial Lives study shows an alarming rise in buy now, pay later usage as well as high-cost credit. Buy now, pay later encourages people to spend beyond their means as you don’t need the readies in your bank account to treat yourself to something nice. But you do need to settle up soon after, and there is a risk people aren’t thinking about how they will eventually fund the purchase.
6. Don’t hoard cash that could be invested. While 10% of adults having no cash savings is worrying, it’s also worth considering those individuals who have too much cash. Having money for emergencies is sensible financial planning, yet hoarding cash that could be generating better returns via investing isn’t a sensible way to put your hard-earned money to work. A lot of people have time on their side to take higher risks with their money and history suggests that investing in shares can generate a higher return than cash over time.