A new survey by the CIPD (Chartered Institute of Personnel and Development) suggests that while workers will react in a measured way to the new pension reforms, many are still concerned that they will not have enough cash set aside to cover their retirement.
Fewer than a third of workers surveyed by the HR trade body, CIPD (Chartered Institute of Personnel and Development), anticipate that they will need to alter their pension plans as a result of the new rules that are due to come into force in April this year.
Essentially, the new legislation cancels any necessity for newly retired people to purchase an annuity. Instead, they are able to take the savings as a lump sum on retirement.
The Chartered Institute of Personnel and Development survey asked the opinions of more than 2,000 workers from across the UK. It found that, at present, the average contribution to a workplace pension scheme was 5% of salary.
The majority of the employees were of the opinion that this would not be enough to cover them in retirement, and would rather set aside 9% of their salary. Twenty two per cent of those surveyed did not know how much they were currently contributing to their pension pot.
As a result of the government’s pension overhaul, 13% of respondents stated that they did plan to increase their pension contributions, while 29% added that while they wished to save more, they were unable to afford it.
Financial advisors often recommend that workers should consider setting aside a proportion of their salary that equates to half of their age when they first began making pension contributions. So, a thirty year old should save 15% of their salary, a twenty year old 10% and so on. This should amount to a yearly retirement income of roughly half their final salary.