A new report claims that the majority of young people doubt the State Pension will exist by the time they retire. So are young people facing a pension nightmare? And should they be worried? Let’s take a closer look at the data.
What did the report reveal about attitudes towards the State Pension?
The 2021 Great British Retirement Survey compiled by Interactive Investor reveals that 53% of those aged 24 to 29 ‘don’t know’ whether they’ll get the State Pension. The survey was carried out by asking retirement questions to over 10,000 people.
The report claims young people have little confidence in the State Pension existing by the time they give up work. That’s because 26% of respondents in their 30s and 53% of those aged between 24 and 29 fear the government won’t provide for them in retirement.
Interestingly, 57% of women and 61% of those who earn below £20,000 also have low expectations of receiving the full State Pension.
Among retired respondents, 83% of those aged 72 or over are receiving the full State Pension. This compares with 75% of those aged 66-72.
Currently, the State Pension is paid to those aged 66 and over. However, this will rise to 67 by 2029, and to 68 some time between 2037 and 2039. To get the full State Pension, you must make at least 35 years of qualifying National Insurance contributions.
What else did the report reveal?
In addition to State Pension findings, the report reveals that there is ongoing uneasiness surrounding future tax changes. Of those who are yet to retire, 30% report that future government changes to tax laws are a ‘top concern.’ These fears may have been fuelled by the government’s decision to hike National Insurance and Share Dividends Tax earlier this year.
Aside from tax fears, the report also reveals that almost half (49%) of those who say they will have to delay retirement following Covid-19, believe they’ll have to work for at least four years longer than expected. And 25% of respondents fear they will never be able to afford to retire.
Besides the State Pension, how do people expect to afford retirement?
According to the report, 19% of those who have retired support their non-working years with a buy to let property. Perhaps surprisingly, a greater number of working people (22%) have a buy to let property to fund their future retirement.
The data also shows that a massive 80% of retirees had wealth tucked away in an ISA, compared to 75% of non-retirees.
2021 Great British Retirement Survey: any other key takeaways?
On a more general level, the Interactive Investor survey also reveals that interest in ethical investments is increasing, with nearly half of respondents investing ethically at least some of the time. The report shows that 6% of respondents invest ethically, 40% do so sometimes and 6% don’t but would like to.
Interestingly, 38% of respondents believed workplace pensions should offer ethical investments as a default option. To learn more about moral investments, see our recent article covering how you can get involved in ethical investing.
Auto-enrolment: a State Pension alternative for young people?
While the future viability of the State Pension cannot be guaranteed, it’s important to realise that you can take practical steps to boost your private pension, which can set you up for a decent retirement.
One step you can take is to understand your employers’ auto-enrolment pension scheme. Auto-enrolment is where your employer makes a contribution towards your private pension (at least 3%). In return, you’ll have to make a contribution too.
Under current auto-enrolment pension rules, the minimum overall contribution must be at least 8%. For example, if your employer contributes 3%, then you must contribute 5%. Some good employers may even contribute more than the minimum, so it’s worth fully understanding what’s on offer to you.
Crucially, auto-enrolment contributions are paid from your pre-tax earnings, so are an efficient way of saving for retirement, especially if you’re a higher rate taxpayer. However, it’s important to note that there are fears the chancellor could put a stop to this benefit in his upcoming Autumn Budget.
What other pension options are there for young people?
It’s also worth exploring the advantages of a self-invested personal pension (SIPP). These pensions give you a lot of freedom if you’re keen to manage and choose investments yourself. See the Motley Fool’s guide to SIPP pensions to learn more.
Finally, a lifetime ISA could be beneficial. This product was set up by the government to encourage saving to buy your first home or for retirement. You can save up to £4,000 a year in a lifetime ISA and you get a 25% bonus of up to £1,000 a year from the government towards either of these milestones. For more details, see our Lifetime ISA guide.
For more general information on planning for your retirement, see the list of the Motley Fool’s latest pension articles.
Please note that tax treatment depends on your individual circumstances and may be subject to change in the future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
The post Most young people doubt they’ll get the State Pension: is it worth worrying? appeared first on The Motley Fool UK.
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