Three in 10 people are overestimating their future state pension payments, some by as much as £50,000 over the course of retirement, as a lack of clear and easily accessible information contributes to worrying gaps in the nation’s pensions knowledge, Which? has found.
The consumer champion quizzed thousands of members of the public on their knowledge of key pension rules and found that savers struggled to identify what they’re entitled to from the government.
Fewer than three in 10 (29%) people knew or guessed that the average amount people get from the state pension is around £150 a week or £7,800 a year.
Meanwhile, a quarter (25%) of savers wrongly thought that figure was £175 a week or £9,100 a year. While this is the full level of the new state pension, not everyone will get this.
Those covered under the old state pension receive £148 a week, on average, while people receiving the new pension get a weekly average of £158.
One in 10 (4%) people wrongly thought that the state pension is worth £200 a week or £10,400 a year on average.
This means people may be overestimating the amount they will get from state pension by as much as £49,400 over the average length of retirement (66 to 85).
When Which? asked what the current state pension age is, just three in 10 (29%) correctly identified it as 66.
A third (35%) of respondents thought the state pension was 67, but this increase won’t happen until between 2026 and 2028.
In comparison, savers scored relatively higher correct scores when asked about ‘pension freedom’ rules, which arrived in 2015.
Around four in 10 (43%) people knew that you now have the option to cash in an entire defined contribution pension, arrange an annuity or use pension drawdown to keep your money invested and withdraw lump sums – or use a combination of these options.
Nearly four in 10 (38%) correctly identified 55 as the age at which you can first access your defined contribution pensions.
Meanwhile, one in 10 (10%) people wrongly thought you could access this benefit at 50.
This age will rise to 57 from 2028 amid fears that allowing savers to access their savings at 55 could lead to some running out of money later in life.
To help people understand their options for accessing their pension pots, the government launched the free guidance service Pension Wise in 2015 for anyone over 50 with a defined
While four in 10 (40%) people we surveyed knew that Pension Wise is the name of this service, fewer than one in 10 of those eligible have actually used it, according to the service’s own evaluation.
In all, those surveyed scored an average of just 30 per cent or four correct answers across the 14 questions asked, showing that confusion around state and private pension rules is still common.
Which? has long called for the introduction of a pensions dashboard to ensure that savers can easily see all their pensions in one place, a change that could help huge numbers of people to understand the state of their pension savings better throughout their life.
Last year, the roll-out of dashboards was pushed back to 2023 – four years after the initial deadline for the scheme.
The consumer champion is calling on the government, regulator and industry to ensure there is no further delay in the delivery of the dashboard for retirement savers.
Jenny Ross, Which? Money editor, said:
“Our research shows that there is still a lot of confusion around key pension rules, so more needs to be done to improve public understanding and engagement to put people in a stronger position to plan for retirement.
“It’s been five years since the government first committed to introducing the pensions dashboard, so it’s crucial there is no further delay in its delivery as some consumers have struggled for too long with a complex, fragmented pensions system.
“Dashboards have the potential to bring huge benefits for people in bringing together all their pensions in one place – including the state pension – which should help millions of people to keep track of their savings and understand them better.”
Notes to editors:
Which? quizzed 2,000 members of the public in November 2020 about key pension rules with 14 questions to find out how much people know about their options for taking money from private pensions, and what they’re entitled to from the government.
The state pension payment data was obtained from the DWP for February 2020 released in August 2020. The next Quarterly release had the average at £154, but this was after the survey.
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