The UK’s combined private defined contribution (DC) pension funds reached £507bn at the end of September, rising by £21bn month-on-month due to stock market gains, according to analysis by Aon Consulting, the leading employee risk and benefits management firm. The research also reveals that younger workers are far more worried about their retirement finances than imminent retirees – paradoxically, this should be viewed as a positive development, providing evidence that young people are waking up to the pension problem.
Aon’s monthly DC Pension Tracker measures the total asset value of UK workers’ DC pension accounts. It also tracks the income in retirement of individuals at different ages who contribute 10% of their £25,000 salary to their retirement savings and have an existing fund (valued as at September 2007) of £15,000 for age 30 and £150,000 for ages 55 and above.
Projected Pensions and financial concerns
The projected annual income from DC pension savings for typical workers with average pension contributions has stayed relatively stable over the last month, despite booming equity markets – this is due to a rise in annuity rates.
A 30 year old worker has seen their projected income fall slightly to £21,255 (from £21,760 at the end of August), while a 60 year old has seen their projected income rise nominally to £12,086 (from £12,021 at the end of August).
An additional research* reveals that, despite improvements to the nation’s pension savings since the dramatic falls earlier this year, financial worries beat health, loss of status/self worth and use of additional free time as the principal retirement concern for 65% of workers. Surprisingly, the young are twice as concerned about retirement finance as some older workers.
Key Findings
- 71% of 25 – 34 years chose financial worry as their primary concern for retirement, compared to only 52% of 55-64 year olds and merely 34% of 65 year olds
- 70% of females selected financial worry as their primary concern compared to just 55% of males
- 20% of men are worried about their health in retirement compared with only 14% of women.
- Men are twice as worried (10%) as women (5%) about how they are going to use the additional free time that retirement has to offer.
- Those on an average annual salary of between £10,001 and £20,000 and £20,001 and £30,000 per annum are nearly twice as concerned about finances in retirement (67% and 71% respectively) than those in higher salary brackets – only 45% of those earning over £50,000 per annum.
Helen Dowsey, principal at Aon Consulting, commented: “Despite improvements to the nation’s pension pot, market conditions are still volatile and pension values can change dramatically in a short space of time. Workers therefore need to pre-plan for their pension, and understand and regularly review their investments to help ease their financial concerns.
“It is actually a good sign that younger workers are concerned about retirement finances. Perhaps the turmoil of the last two years has been the wake-up call they have needed to get them thinking about long-term planning for their financial security.
“The fact that women are more concerned about their retirement finances than men should be no surprise, considering traditionally they are more likely to work part-time or for fewer years than their male counterparts. However, this is even more reason for women to educate themselves on the options out there to maximise their retirement savings, such as taking the open-market route for purchasing annuities, for example.”
About the Aon DC Pension Tracker
The Aon DC Pension Tracker (the DC Tracker) provides a realistic gauge of how the British DC pension market is faring by examining how the wider economy is impacting on the pensions of average workers. The research tool does two things:
1. Tracks the change in size of the British DC pension market.
2. Calculates the expected pension income at retirement for individuals. This is based both on assumptions for future investment return and inflation as well as taking into account the actual changes in investment performance and annuity rates.
The Aon DC Pension Tracker examines the changes in workers’ pensions month on month, depending on different age groups and assuming 100% of the pensions are invested in equities. It tracks the income in retirement of individuals at different ages who contribute 10% of their £25,000 salary to their retirement savings and have an existing fund (valued as at September 2007) of £15,000 for age 30 and £150,000 for ages 55 and above. The DC Tracker shows what this would be worth at the time the press release is issued.
*: Aon Omnibus Survey : independent online survey of 4,046 workers from across Britain, who are 18 years or older.
