Pension saving ‘now more important’

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Published: Sunday 25th January 2015 by The News Editor

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Pension saving has become one of the nation’s top priorities – but people are still more likely to put any spare cash they might have towards a holiday rather than their retirement fund, a report has found.

People ranked saving for retirement third in importance, behind holidays and saving for a rainy day, when asked by workplace pension scheme Nest what they would do with their money if they happened to have some extra cash available.

When similar research was carried out in 2011, pension saving came seventh on the list, behind socialising and going out and spending on shoes and clothes.

In the latest research, 55% of people mentioned holidays as a priority area, while 45% mentioned saving for a rainy day and 40% highlighted retirement saving.

Carried out last autumn, the new research took place among 2,000 people who are eligible for the Government’s scheme to automatically enrol people into workplace pensions.

More than five million workers have already been automatically enrolled by their employers and, so far, a much higher than expected rate of nine in 10 people are staying in their pension once they have been placed in it, rather than opting out.

The scheme aims to tackle fears that people are living for longer but have not been putting enough cash aside for their later years.

It is part of a much wider pensions shake-up, with the overall aim being to give people confidence that saving is worthwhile and also handing people the freedom to do what they want with their money when they come to retire.

People who have opted out will be re-enrolled three years later – and Nest found that even those who have opted out so far are warming to the idea of saving into a workplace pension.

Those who have opted out are now twice as likely to say they will stay in it next time they are enrolled, at 41%, compared with 19% when another survey was conducted in 2013.

From April, the requirement for people to use their defined contribution (DC) pension pot to buy an income called an annuity when they retire will be swept away.

Instead, people aged 55 and over will be able to choose how they access their pension pots, subject to their marginal income tax rate in that year. People will be able to take their pension all in one go if they wish, or in a series of slices.

The findings suggest that the reforms will encourage people to pay more money into their pensions, with 29% of those surveyed saying they plan to pay more in as a result of the new freedoms.

Young people were particularly likely to say they will pay more into their pension due to the knowledge that they will have more freedom over their pot, with 36% of 22 to 30 year olds planning to increase payments into their pension as a result.

Tim Jones, chief executive of Nest, said: “It is hugely positive to see that pensions are becoming embedded as a national priority.

“Until recently, millions of people were not saving for retirement. Auto enrolment and now the new pension freedoms have changed all this – reform is leading to a pension revolution.

“It just shows how far we’ve come. Saving for later life is fast becoming the ‘new normal’, which is fantastic news.”

The full Nest Insight report will be published on Monday.

Pensions Minister Steve Webb said: “Our reforms means that millions of people who didn’t have the chance to save in a workplace pension before will be on track for a more comfortable retirement, and I see the new pension freedoms providing a further boost so savers have more control over their hard-earned money.

“Automatic enrolment is helping millions of workers to save for the very first time – with over five million workers now enrolled into a workplace pension. But there is still far more to do, with close to half of working age people not saving enough to maintain their standard of living into old age.”

:: Here is what people said they would spend their money on if they had some extra cash, when asked last autumn, ranked from the most popular answers to the least popular:

1. Holidays/travel

2. Saving for a rainy day

3. Saving for retirement

4. Home improvements

5. Putting money aside to watch it grow

6. Clearing debts and loans

7. Paying off the mortgage

8. Saving for a new home

9. Socialising and going out

10. Shoes and clothes

And here is how the answers were ranked when the same question was asked in 2011:

1. Holidays/travel

2. Home improvements

3. Socialising and going out

4. Saving for a rainy day

5. My car

6. Shoes and clothes

7. Saving for retirement

8. Paying off the mortgage

9. Saving for a new home

10. Making sure my children have everything they need

Published: Sunday 25th January 2015 by The News Editor

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