Delaying setting up a pension can cut savings by hundreds of thousands, with a 10-year delay potentially reducing a £800k pot to £500k, according to the Institute and Faculty of Actuaries (IFoA).
Many are unaware of how life choices can reduce their retirement savings by hundreds of thousands of pounds. The IFoA’s report, “How much could you lose? Opening the conversation on closing the pensions gap,” uses actuarial modelling to explore the barriers to saving and the resulting pension gaps.
The report highlights six key life moments where individual decisions can significantly impact retirement savings, contributing to pension gaps. These include not starting a pension (-£300k), opting out of one (-£100k), missing out on extra employer contributions (-£100k), taking six months of maternity leave (-£30k), getting divorced (with the financial impact varying by couple), and transitioning from full-time to part-time work (-£200k).
IFoA pensions gap working party Alexandra Miles says: “It is concerning that an individual could stand to lose a staggering amount of money during some of the most significant moments of their lives. On top of this, they may be largely unaware of these hidden costs and the drastic impact that short-term decisions can have on their pension savings over the long-term. Some may be faced with multiple significant moments throughout their lifetime, further compounding the issue.
“We have the data and have run the analysis that shows the extent of the pension gap problem, we must now act on it to further explore and overcome the hurdles – structural and attitudinal – that people face when saving for their retirement. In this research we have tailored recommendations to governments, employers and individuals. At the heart of the recommendations is a call for truly equitable and long-term policies, and the structural support that can make a difference in practice, ensuring that people feel more in control at the key life moments that matter for pensions.”
IFoA president Kartina Tahir Thomson says: “The numbers presented in this report are stark. When we are making some of the biggest decisions in our lives, it is worrying that so much is at stake. On top of this, many people are unaware of the hidden costs of their decisions that may not impact them until years later, during what could be considered the most vulnerable years of their life.
“This research is an example of the important work actuaries do in the interests of the wider public, collaborating with industry and stakeholders to highlight areas of concern and set out practical steps to address them.”