New research has exposed a significant shift in how UK households are preparing for retirement, with a majority now feeling compelled to build their nest eggs outside of traditional workplace pension schemes.
A Crisis in Pension Confidence
The study, conducted by investment platform interactive investor, found that 57 per cent of employed Britons are now putting money aside for their later years through alternative methods. This trend underscores a growing lack of faith in the pension system, with savers increasingly favouring the perceived safety of cash over long-term investments.
The most popular alternatives include cash savings accounts, stocks and shares ISAs, and buy-to-let property. Notably, 43 per cent of those saving outside a pension are using cash deposits, while only 21 per cent are utilising stocks and shares ISAs.
Expert Warns of a Dangerous "Engagement Gap"
Camilla Esmund, a senior manager at interactive investor, issued a stark warning. "It's clear from our research that the constant tinkering of the pension rules is harming public trust in pensions, disincentivising retirement saving, and risks widening the glaring pension engagement gap we have in the UK," she stated.
"Without urgent action to support savers, millions may reach later life without enough money to live comfortably," Ms Esmund added, describing the overall trend as deeply worrying.
She expressed particular concern over the heavy reliance on cash. "Higher interest rates give the impression that cash savings are a good long-term option, but interest historically lags behind investment growth," Esmund explained.
The Case for Investing and Tax-Efficient Saving
The expert advocated for a more balanced approach for those able to take on more risk. "For those who are comfortable with taking more risk, investing in the stock market can generate more long-term growth on their funds, benefiting from compound returns," she said.
Esmund also highlighted the importance of using tax-efficient wrappers like ISAs. "By using an ISA they're shielding any growth and dividends from tax, helping their pot to grow quicker. This is especially important when using various accounts to plan for a specific goal like retirement. It helps keep costs under control, too, provided the platform used offers good value."
Younger Generations Abandon Hope for State Pension
Craig Rickman, personal finance editor at Interactive Investor, noted that anxieties about the future are particularly acute among younger workers. “Fears about the state pension’s future have clearly reached the ears of Millennials and Gen Z, who don’t expect it to be their main source of income in retirement,” he said.
“Many feel they will continue working…we have no idea how the state pension will look down the line,” Rickman concluded, painting a picture of a generation planning for a future with little state support. This sentiment is a key driver behind the move towards personal, non-pension savings vehicles.
