Tackling the Savings Gap Q4 2018 – Are you prepared for retirement?

Please note this blog post was published over 12 months ago and so may not include the most up-to-date information, for example where regulation around investing has changed.

Tackling the Savings Gap Q4 2018 – Are you prepared for retirement?

We’ve made it our mission to at True Potential Investor to help close the UK’s Savings Gap. Through ISAs and Pensions we’re helping people to do more with their money, and another difference maker is our quarterly ‘Tackling the Savings Gap’ report.

Headline findings, based on responses given in November 2018, include:

  • £356: The average amount savers added to their Pension pot in the last three months.
  • 32% of people saved nothing for retirement in the period.
  • £530: Average amount added to general saving and investments, not including pensions, in the quarter.
  • £979: Average amount of debt taken on by UK consumers in the last three months.

The future holds many uncertainties, which almost 32% of individuals are not financially prepared for. The value of pensions is highly undervalued as individuals seek short term benefits and do not think much of the long-term implications. Our studies show an income of £23,000 is needed annually to live comfortably in retirement. Based on current savings behaviour, individuals in the UK are on track to receive an income of £6,000 annually which is almost 4 times less.

Higher contributions to your pensions result in more money for your retirement over the long term. Our primary research shows us a total of 32% of our survey saved absolutely nothing for their futures.  However, those who do save will have a much more easy and pleasant retirement, hopefully meeting the lifestyle they desire.

One area of focus in this quarter’s Savings Gap report is the struggle parents face when saving for their children. Only one in four parents are regularly putting funds aside for their child, as they face many financial pressures on them, such as funding further and higher education, getting married, and buying a first property, which are all cash draining events that hinder retirement savings. But our latest survey shows that, in many households, parents are unable to give their children this financial head-start in life.

Another insight from the Savings Gap Q4 2018 report is that one in two IOUs are never paid back. Half of the loans issued by the bank of mum and dad are never repaid in full, hampering parents’ efforts to save for retirement. Our findings on unofficial borrowing by UK consumers outside the banking system shows that a huge proportion of loans are never fully repaid. A staggering 49% of loans given out by parents to grown children are not paid back in full. The unfortunate consequence of this goodwill is that funds saved with the intended purpose of retirement may be loaned out and never returned.

“Clearly, when household budgets are stretched, such saving activity may not be possible; but parents must understand that even a small amount saved on a regular basis can have a big impact in the long term,”said David Harrison, Chairman of True Potential. “This is an important message which needs to be embedded into the new wave of financial education currently sweeping through schools across the UK.”

Data on the gender Savings Gap shows that women may need to think more carefully about retirement. During the last quarter of 2018, more men than women paid into their pension pot. Fewer women also made contributions to their general savings in the period.

Contributing more money for your retirement through a Workplace Pension is a simple and effective way to close your own personal Savings Gap. Contributions are made by both you and your employer, not forgetting income from tax relief. This is when a portion of your income tax is placed into your pension pot by the government. Financially, you are potentially better off having a pension scheme as more contributions are added by your employer and the government on top of your own contributions.

Tackling the Savings Gap Q4 2018 is a fascinating read. Download your copy now, and think about how the findings apply to your own life.

With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Past performance is not a guide to future performance. Tax rules can change at any time. This blog is not personal financial advice.

Personal Finance