Fewer of us are saving for a pension.
Well, I can't say that I'm surprised. Although, to judge from the furore, it seems that I should have been.
To cut a long story short, it turns out that one in six pension savers has stopped making monthly pension contributions since the recession started in 2008. Keeping the wolf from the door today, in short, has taken priority over keeping the wolf from the door in retirement.
According to the Office for National Statistics (ONS), over a million of us have suspended our monthly pension contributions, with pension contributions falling from £20.9 billion in 2008 to £18.7 billion in 2010 -- a fall of just over 10%.
The ONS blamed the recession, and tightened household budgets. Well, yes. But the comments sections in the national newspapers that covered the news told a rather different story.
Widespread dissatisfaction over pension returns, transparency, costs, retirement dates and a number of other factors were all thrown into the pot by angry and upset readers.
The simple message: Why should I put money into something that offers so uncertain a return? One 25-year old, I saw, was vowing never to pay into a pension.
Knock the providers, not the product
The reality is rather different, as that cut in pension saving of just 10% reveals. Simply put, saving into a personal pension product is still most people's best bet for a comfortable old age. As, thankfully, five in six of us still realise.
In short, there's a lot wrong with Britain's pension industry, but also a lot that's right with it. Indeed, I'd go further: avoid the worst excesses of the high-fee, low-returns crowd, and there are some pretty decent retirement-saving products out there.
Such as? Well, low-cost SIPPs from a number of providers, for instance. Or some of the low-cost stakeholders, especially when bought through a discount broker. And even equity ISAs have a role to play.
Tapping into those products will do a lot to boost eventual returns. The less you pay in costs and charges levied by middlemen, the more your pension savings can boost your retirement, and not your financial adviser's retirement.
In short, it's not rocket science.
Four steps to heaven
Nor is it difficult get advice on what to do. Boiled down to the basics, I reckon the following four-part strategy should help you towards a more comfortable retirement -- even if you're presently one of those who has stopped paying a monthly contribution.
- Use tax shelters. SIPPs, ISAs and stakeholder pensions have their respective merits, but each offers a route to retirement that takes advantages of tax incentives to save. You could always stick the money in a regular brokerage or bank account, of course ‑‑ but a tax‑efficient stocks and shares ISA, cash ISA or SIPP is better.
- Save regularly. Not only is putting money aside each month a useful financial discipline, it's also a perfect way to take advantage of pound cost averaging ‑‑ in effect, buying more shares when they are cheap, and buying fewer shares when they aren't. It may be tough, but it's better putting something aside, than nothing.
- Keep costs down. High charges directly eat into your investing returns, leading to a poorer retirement. As a result, it's difficult to beat low‑cost investments held inside a low‑cost wrapper. Minimise your exposure to high‑charging investment funds ‑‑ many of which fail to beat the market ‑‑ and opt instead for individual shares or index trackers.
- Start early, and resume if you've stopped. The sooner you start saving, the better. The longer you have for those returns to build up through compound growth -- as dividends are re‑invested to buy more shares, which in turn yield more dividends ‑‑ the bigger your retirement pot will grow. And as a gap in savings produces a shortfall in returns, keep pension 'holidays' as short as possible.
Time for action
As I've said, the above isn't rocket science. So if you're one of those people who suspended their pension-saving contributions during the recession, please do urgently think about re-starting them -- with another, better, lower-cost provider if necessary.
Doing nothing, in short, just isn't an option. I know it, and so -- I hope -- do you.
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