Saver ups and downs along the road to retirement (Birmingham Post article 04.01.2024)

How confident are people about their retirement prospects?

Surprisingly upbeat, according to the inaugural Nucleus UK Retirement Confidence Index.

However, advisers are circumspect about the outcome, believing the storm clouds are gathering.

Whatever, there are some truths which cannot be readily ignored.

Nucleus states: “In these uncertain times with widespread cost-of-living concerns, it’s more important than ever for people to feel confident about their financial future. People are living longer and increasingly need higher levels of income in retirement.”

Citing figures from the Pension and Lifetime Savings Association, it goes on: “Income needed for a ‘basic’ standard of living in retirement has increased by almost 20% from the previous year, fuelled by rising inflation. A single person now needs a minimum of £12,800 per year and a couple £19,900. A moderate lifestyle now costs £23,300 (£34,000 for a couple) and a comfortable retirement £37,300 (£54,500).

“It will be a daunting prospect. There’s a common tendency to underestimate life expectancy when thinking about retirement and ongoing income needs but reaching 100 is now a real possibility for many. The decline of defined benefit (DB) pensions, demographic challenges, increases to State Pension ages, and modern career paths have all exacerbated the issue.”

The Index, which tracks UK retirement confidence over time, has come up with a score of 6.9 out of ten, but with a negative outlook.

It reflects the continuing decline of DB provision and inadequate defined contribution (DC) pots, combined with persisting cost of living worries and low expectations around investment returns.

Men are generally more confident than women, while retirement confidence broadly increases with age.

Just over half of respondents (51%) have a detailed plan for retirement. The top three retirement goals are financial security (65%), spending more time with family and friends (50%) and travelling abroad (39%), with leaving an inheritance also important (26%). Overall belief in achieving these goals is high (7.2), with 66% confident of having enough money to live comfortably for the rest of their life.

Higher levels of confidence are largely attributed to an absence of debt.

Some hope to free up cash via downsizing or through equity relief. Others anticipate inheritances.

For those who aren’t confident about having a financially comfortable retirement, concerns are mainly around possible care costs in later life, but it is clear that the current cost of living, and what the future might hold in this respect, is a real issue too.

The overall tendency across the sample is to take a very low level of risk when investing for retirement. Perhaps sensible given taking retirement income is one of the biggest decisions (financial and otherwise) we’ll make in our lives.

Advisers generally are far less optimistic – taking a cautious approach to the financial road ahead.

Reasons include the current financial climate with concerns around the cost of living and interest rates; uncertainty stemming from investment market movement and legislative changes; less security and more responsibility as DB pensions fade into history; and the State Pension triple lock being (very likely) eventually scrapped. “There’s huge potential for those who have already retired getting caught out by things they hadn’t accounted for, such as unexpected taxation caused by accessing pension money without a full understanding of the consequences; confusion around the proliferation of pension pots and what to do with them; and disillusionment over their expectations.”

Dangers encompass running out of money, having ample money but not accessing it in the best order for inheritance tax planning, incurring additional and avoidable tax bills, overestimating returns and underestimating life expectancy, and not taking account of inflation or possible care costs.