FCA Financial Lives: millions of people facing uncertainty in retirement

• One-fifth (19%) of non-retirees have no private pension, according to the latest FCA Financial Lives survey
• Meanwhile two-fifths (41%) are not currently contributing to a pension
• A third of adults (33%) with defined contribution (DC) pensions have less than £10,000 saved for retirement
• Many people also feel unprepared for retirement, with 22% of non-retirees saying they don’t understand their options and 31% admitting they hadn’t thought about how they’d manage financially in retirement
• Just 35% of adults had investments, down from 37% in 2022 – savings product ownership rose to 71% as investing product ownership fell to 39%
• Three-fifths (61%) of adults with £10,000 or more in investible assets held all or at least three-quarters in cash
• Six tips to help get your finances in order

“Many individuals appear to be setting themselves up for a nasty shock later in life by not putting enough money away for the future,” says Dan Coatsworth, investment analyst at AJ Bell.

“The FCA’s Financial Lives survey implies that a lot of people will be too reliant on the state pension to pay the bills and support their lifestyle once entering retirement. The full state pension currently adds up to £11,973 a year and while that should help keep a roof over your head, it doesn’t leave much left over for any of life’s luxuries.

“A lot of people use a combination of the state pension, workplace pensions and personal pensions to fund their retirement, together with cash savings and ISA investments. Unfortunately, not everyone is in a position to draw from a range of accounts. Some might only have a tiny nest egg by the time they retire.

“The FCA’s survey shows that one third of adults have less than £10,000 saved in their pension, which is worrying. That’s not such an issue if they’re in their twenties or early thirties and have decades ahead to put money away, but it’s troubling if someone who is in their forties, fifties or early sixties is in this situation. It’s vital that people have the support they need to squirrel away as much as they can while they’re still working.

“Reforms such as ‘targeted support’, currently being prioritised by government and the FCA, should help with this. These reforms have the potential to enable people to make better-informed decisions about saving and investing, boosting financial resilience and supporting the FCA’s Consumer Duty reforms, which centre on delivering good outcomes for customers. The economy should also be a substantial beneficiary if these reforms help spearhead a retail investing revolution in the UK.

“The FCA also report an increase in the number of people with investible assets of £10,000 or more who held at least three-quarters of those assets in cash, as well as a drop in the number of UK adults holding investments. This will have been partly driven by a period of high interest rates on cash over the past few years, meaning many people will have turned to cash accounts over investments. The government has frequently expressed its desire to foster a retail investing culture in the UK as a means to encourage long-term saving habits and boost economic growth, and it has options to do this. One obvious starting point would be to simplify the ISA system by merging Cash and Stocks and Shares ISAs, removing barriers to investing for the millions of Cash ISA savers who hold the accounts but have not invested a penny into Stocks and Shares ISAs.

“It might feel as if everyday life is already putting big demands on your money and that it’s hard to deal with the here and now, let alone prepare financially for years down the line. The cost of living has gone up and many individuals don’t have much left after payday once bills are settled up. However, kicking your retirement saving down the road could be a grave mistake. Every little extra you can put away now could make a big difference to the life you can afford to live in your golden years.”

Six tips to help get your finances in order

“There are several things you can do now to help get your finances in order. We’ve highlighted six tips below:

1. Pay more into your workplace pension. At least 8% of your salary must go into a workplace scheme under auto-enrolment rules; half from you, 3% of your salary from your employer, and the equivalent of 1% from the government. This just a minimum and employers often pay more if you also increase your contribution. Check to see if your employer offers more generous contribution rates if you also chip in more. This is effectively free money to give your pension a boost. Self-employed individuals are excluded from auto-enrolment, but they can still use a self-invested personal pension (SIPP) or a Lifetime ISA to save for retirement and enjoy top-ups from the government in the form of tax relief and bonuses, respectively.
2. Pay more into your personal pension. Anyone who manages their own pension and is still in employment should think about digging a little deeper into their pocket. Even an extra £30 to £50 a month could put a smile on your face in retirement. You might be sacrificing a night in the pub or a meal out, yet this money could grow in value over the coming years and fund multiple nights out down the line. Sacrifice now and celebrate later.
3. Consolidate pensions. If you’ve had multiple jobs during your working life, it’s easy to build up a range of pensions with different employers. Combining these into a single pot makes sense from a time management perspective and you might also be able to save on costs. Having a single pot means you can have a clear focus on what you’ve got and how you’re going to hit your goals.
4. Shop around for more financial-related products and services than just home and motor insurance and mortgages. The idea that someone goes with the first financial adviser or motor finance deal that comes along is troubling. It could leave people open to paying through the roof and getting bad value for money.
5. Try to avoid relying on credit. The FCA’s Financial Lives study shows an alarming rise in buy now, pay later usage as well as high-cost credit. Buy now, pay later encourages people to spend beyond their means as you don’t need the readies in your bank account to treat yourself to something nice. But you do need to settle up soon after, and there is a risk many people aren’t thinking about how they will eventually fund the purchase.
6. Don’t hoard cash that could be invested. While 10% of adults having no cash savings is worrying, it’s also worth considering those individuals who have too much cash. Having some money for emergencies is sensible financial planning, yet hoarding cash that could be generating better returns via investing isn’t a great way to put your hard-earned money to work. A lot of people have time on their side to take higher risks with their money and history suggests that investing in shares can generate a higher return than cash over time.”