Private pensions are only going to become more important for people in the future if signals from the government this week are anything to go by.
Speaking at the Labour party conference on Tuesday, prime minister Andy Burnham announced plans to bring the state pension triple-lock down to a double-lock.
Currently, the state pension rises by the higher of 2.5%, inflation or average earnings, in a mechanism known as the 'triple lock'. But should Labour win the next election, average earnings will be scrapped from 2030 from the calculation.
This is a sensible move overall. Analysis from AJ Bell shows that since the triple lock was introduced in 2011, the state pension has risen in line with inflation five times, earnings six times and the 2.5% minimum four times.
Taking away the most commonly used of the three will bring some of the spending on pensions down in the future and should free up cash for elsewhere, all while still offering retirees inflation-matching uplifts.
But while I understand the logic and can see why it makes sense, it is also easy to worry about the direction of travel for the state pension and the situation people of my generation and below will find themselves in when we reach retirement age.
The state pension age is rising all the time. At present, the end of the increase is slated for 2044, when the retirement age is set to hit 68 years old.
However, ask anyone with 20 or more years left to retirement and there will be questions on whether there will even be a state pension at all and if ‘retirement age’ will be a thing.
If you happen to be even further away from retirement in your 20s or 30s – as I am – this is a common statement made by older generations when discussing pensions.
Glib? Perhaps. But a warning nonetheless that we should not ignore.
This places more emphasis on private pensions, but saving into them is not easy for some. In fact, research from Scottish Widows this week found that almost two-thirds of us (63%, or 34 million Britons) are likely to face a major life event or financial challenge before retirement that will cause us to alter how much we are putting away in our pensions.
This can range from something big like health, divorce and bereavement, to more common issues like lower financial resilience and reduced confidence in managing day-to-day finances.
Jill Henderson, retirement expert at Scottish Widows, said: “Whatever form it takes, the reality is that most of us will be affected by financial vulnerability at some point in our lives, even for a short period.”
More than half of people with vulnerable characteristics say putting money aside for retirement increases their financial stress today, the firm’s Retirement Report, which focuses on the impacts of vulnerability, found. Meanwhile, vulnerable people are twice as likely to become overwhelmed when thinking about retirement savings.
This makes it important to build pension savings early. If, for whatever reason, you have to cut down or stop paying into your pension for a year or two, having saved as much as you can beforehand will help mitigate the impact of this.
So whether it be to retire early, to supplement a less lucrative (or potentially extinct) future state pension or to save more now in case the worst should happen even before you get to retirement age, everyone should be considering how much they are saving for their pension and whether they can do more.
It might not be the most exciting thing you can do with your money, but future you will appreciate it.