By Trevor Clawson

Savers in the South East of England are sitting on significantly larger pension pots than their counterparts elsewhere in the UK, but headline figures suggesting a North/South divide may hide a more worrying truth about the state of the nation’s retirement arrangements.

In a snapshot of pension contributions covering England, Scotland Wales and Northern Ireland, mobile-enabled pensions management and consolidation company, PensionBee found evidence of pronounced regional disparities, not only in terms of the average sums saved to date but also the amounts set aside month-on-month by its customers.

According to the company’s figures, the average pension pot in the South East of England totals £28,183, compared with just £15,000 in both the North East and North West of the country. On the face of it, that would suggest that in the ‘affluent’ south, savers are set fair for retirement, but as PensionBee Communications Manager, Jasper Martens cautions, the headline figures do not tell the whole story.

“The regional differences that we’re seeing may not mean that those living in London and the South East will be better off when they retire,” he says.

Savings Differentials

As things stand, Londoners appear to be sitting close to the top of the pension pot league table, having accrued an average of more than £21,000. However, that won’t necessarily feed through to a comfortable old age. Based on current contribution patterns, PensionBee predicts that the average London saver will have a pension equivalent to just a quarter of his or her employed income by the time retirement rolls around.

“The evidence suggests that people need around 70% of their employed income to be comfortable,” says Martens.

In contrast, average pension pots are currently relatively low in Wales and Northern Ireland (both around £15,000)  but as the report points out, the Irish are putting more money aside every month than anyone else in the country, while the Welsh are the most regular savers. If those patterns continue, savers from both countries could soon close the gap with London and the South East.

In fact, on current projections, Northern Ireland savers are looking forward to a final pension pot in the region of £139,000 compared with a £132,000 in London while also enjoying a lower cost of living. As Romi Savova, CEO of PensionBee sees it, the moral is simple.

“The data clearly shows that the most important part of a pension is how much you put in,” he said.

Savova acknowledges that the pensions industry faces a challenge in encouraging individuals not just to save, but to commit enough money to meet retirement expectations.

“The government has made it attractive to save and as an industry, we need to do the same,” he said.

Encouraging Saving

That might be easier said than done. On some measures, the pensions industry is enjoying something of a golden era at the moment, not least because of the introduction of auto-enrolment workplace pensions that require employees to opt out rather than opt-in. According to Government figures published in February 2018, personal contributions rose to a record £25.6bn in the 2016/2017 financial year compared with £24.3bn in the previous twelve month period. Meanwhile, the Treasury contributed £38.6bn in the form of tax relief. So in theory at least, a new generation of savers should be looking forward to well-resourced retirements.

Gaps in the System

That is assuming they are either enrolled in pension schemes or putting money aside themselves on a regular basis.

For most people, the primary vehicle building for up a pension pot will be an occupational plan, provided by the employer, but under the current system, many people of working age fall outside the scope of the auto-enrolment rules.

In particular, there is no requirement for self-employed people – which typically includes those working in the so-called gig economy – to take out a pension. According to a poll of the self-employed, released this month by online accountancy firm Intuit Quickbooks, around 80% of those who work for themselves do not feel they are saving enough for retirement, with 38% saying they lack the money to do so and 15% preferring to invest in spare cash back into the business.

Meanwhile, a separate report published by pension provider Lifesight on May 5 indicates that worries about retirement income are on the rise in the population at large, despite the expansion of auto-enrollment. One important factor is that most of the employees questioned by Lifesight said they didn’t prioritise pension savings until their forties or fifties.

“For millennials especially, short-term goals are much more important than long-term savings and so employers have the added difficulty of communicating the importance of retirement savings to them,”

said David Bird, Head of Proposition Development at Lifesight

Multiple Pensions

The slow but inexorable demise of the “job for life” has added to the shortfall problem. Today’s workers typically move from employer to employer much more regularly than was the case even twenty years ago and that means many end up with several unconnected pension pots and have no real idea of what they will receive as a retirement income or how much they should be saving.

Visibility is Key

Jasper Martens, says it is important to take a proactive approach to pension planning.

“People move jobs and they have a number of pensions. What you should do is look at what you have and work out how much you will get. Visibility is key.”

That isn’t necessarily easy. Pension plan management is not an area that has been the subject of much innovation in the UK fintech marketplace – although the Government is working on a Pensions Dashboard to help occupational plan members track the performance of all their schemes. For its part, PensionBee offers a private sector, mobile-friendly pensions management solution, albeit one that is focused on consolidating existing plans under one management tool.

For savers, there are numerous investment apps available in the UK, including Nutmeg, Wealthify, Chip, Moneyfarm and Wealthsimple – all making it easier to put money aside.

As millennials move from youth into middle age, we’re likely to see a much greater emphasis on pension innovation. In the meantime, it’s important for everyone paying into one or more plans to understand what they can expect to receive in the form of retirement income.