Buck the trend and plan carefully for retirement

Once the envy of the world, the UK's pension system is a shambles, with the average Briton saving only enough for seven years of retirement. How can you redress the balance, asks Esther Shaw

The UK may once have had one of the best-funded pension systems in Europe, but now Britons lag far behind much of the rest of the world when preparing for later life.

Worrying new findings from HSBC show that while the average retirement in the UK is expected to last 19 years, savings will be used up after just seven years. This 12-year shortfall is the worst identified by the study of 15 countries; the UK falls below the US, Australia, Canada, France, China, Brazil and India.

HSBC predicts the situation is likely to worsen as life expectancy rises and people fail to make up the shortfall while they can.

"We know people aren't prepared for retirement – and now we know by just how much," says Christine Foyster from HSBC. "People are living longer, through tougher economic times, but putting off the inevitable, which is the reality of significant cuts to their living standards in their twilight years."

Further findings show a fifth of the UK working population are saving nothing at all for later life, while more than half of those not yet retired would prioritise saving for a holiday over saving for retirement.

So how exactly have we got into such dire straits – and how can we get out of them?

"The best-funded private pension system in Europe became one of the world's worst within a generation largely because of government tinkering," says David Crozier from adviser Navigator Financial Planning. "There have been so many changes to contribution limits, death benefits and how benefits can be taken, it's hard to keep up."

Simon Webster from adviser Fact & Figures says a series of pension scandals, such as Equitable Life, also rocked public confidence. "Relatively poor equity markets, low annuity rates and a multitude of negative headlines have all combined to put people off," he says.

Jason Witcombe from adviser Evolve Financial Planning adds that the demise of final salary and other defined benefit schemes is an "absolute disaster". "These schemes allowed people to get on with their job knowing that at least some of their retirement was taken care of."

One of the stark truths is that workers are very much on their own when it comes to pension saving. "Gone are the days when most people could rely on the state or their employer to provide them with a comfortable retirement," says Patrick Connolly from adviser AWD Chase de Vere. "The biggest challenge is getting people to understand they need to do something."

The key message is the sooner you start saving, the easier it will be to fund the retirement you want. "Invest as much in a pension as you can and make retirement planning part of your budget from the day you start work," says Mr Webster.

As a starting point you should see if your employer provides any pension schemes. Many will make additional contributions to your company pension and allow you to pay into it out of your gross salary, meaning you will pay less tax.

In addition, millions of workers are starting to be joining a workplace pension scheme under auto-enrolment. "But this alone is unlikely to build a substantial enough pot to retire securely," warns Gareth Reynolds from adviser MGS Financial.

For most people, the best approach is combination of pensions and individual savings accounts (ISAs). Pensions provide initial tax relief which give your savings an immediate uplift but are inflexible; ISAs are tax-efficient and allow you access to your money whenever you like.

Whatever age you are there are steps to help prepare for retirement:

In your twenties and thirties

You are likely to be focused on buying a house, getting married, and having children, but you should also give thought to longer-term savings. "You may not be able to afford large contributions but the key is to get started," says Helen Howcroft from adviser Equanimity. "You should save into a variety of places, such as ISAs and pensions."

If you are happy to accept the risks, you can take a fairly aggressive approach to investments, as you will be able to ride out any market volatility.

Forties and fifties

Higher earnings now give scope for increased contributions to longer-term planning. "This is an important time to review how much you are saving – and what you are likely to get in return," says Mr Connolly.

While there will also be short-term priorities such as mortgages and supporting children, these costs should start to reduce.

"At this stage there should be more of a focus on pension investments, but the investment approach should be less aggressive as you can't afford for your holdings to fall significantly in value," adds Mr Connolly.

It is also a good time to seek advice to ensure any existing pension pots are working for you.


You should ensure everything is on track to give the required standard of living post work.

"Investments are likely to be more conservative, to protect what has been accumulated," says Mr Connolly. "There is likely to be a balanced split between pensions and ISAs."

That said, many people will live for decades beyond their retirement date and "should still aim to take some risk to help preserve the real value of their capital and income over time," adds Mr Connolly.


Most people will buy an annuity – a guaranteed income for life. However, annuity rates are at historically low levels, so those with larger pension funds, may want to consider income drawdown, which provides an income while the pot remains invested.

For those buying an annuity, it's vital to shop around for the best rates. From March, a new code of conduct overseen by the Association of British Insurers, will force pension providers to make it clear consumers don't have to accept the annuity they offer.

"Shopping around for an annuity can have the single biggest impact on your pension income," says Karen Barrett from Unbiased.co.uk. "Taking advice is highly advisable."

Also, if you are a smoker or have a condition that could affect your life expectancy you may benefit from an enhanced annuity's better rates.

Independent Partners: Get your free guide on the Top 10 tips for retirement

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Ashdown Group: Marketing Manager - B2B, Corporate - City, London

    £45000 - £50000 per annum + benefits : Ashdown Group: A highly successful, glo...

    Neil Pavier: Commercial Analyst

    £50,000 - £55,000: Neil Pavier: Are you a professionally qualified commercial ...

    Loren Hughes: Financial Accountant

    £45,000 - £55,000: Loren Hughes: Are you looking for a new opportunity that wi...

    Sheridan Maine: Finance Analyst

    Circa £45,000-£50,000 + benefits: Sheridan Maine: Are you a newly qualified ac...

    Day In a Page

    No postcode? No vote

    Floating voters

    How living on a houseboat meant I didn't officially 'exist'
    Louis Theroux's affable Englishman routine begins to wear thin

    By Reason of Insanity

    Louis Theroux's affable Englishman routine begins to wear thin
    Power dressing is back – but no shoulderpads!

    Power dressing is back

    But banish all thoughts of Eighties shoulderpads
    Spanish stone-age cave paintings 'under threat' after being re-opened to the public

    Spanish stone-age cave paintings in Altamira 'under threat'

    Caves were re-opened to the public
    'I was the bookies’ favourite to be first to leave the Cabinet'

    Vince Cable interview

    'I was the bookies’ favourite to be first to leave the Cabinet'
    Election 2015: How many of the Government's coalition agreement promises have been kept?

    Promises, promises

    But how many coalition agreement pledges have been kept?
    The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

    The death of a Gaza fisherman

    He built his own reef, and was fatally shot there by an Israeli gunboat
    Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

    Saudi airstrikes are fuelling the Gulf's fire

    Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
    Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

    The only direction Zayn could go

    We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
    Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

    Spells like teen spirit

    A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
    Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

    If fashion is a cycle, this young man knows just how to ride it

    British designer Jonathan Anderson is putting his stamp on venerable house Loewe
    Number plates scheme could provide a licence to offend in the land of the free

    Licence to offend in the land of the free

    Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
    From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

    From farm to fork in Cornwall

    One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
    Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

    Robert Parker interview

    The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
    Don't believe the stereotype - or should you?

    Don't believe the stereotype - or should you?

    We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor