When it comes to saving for retirement, people view workplace pensions as the ‘safest’ option, according to the latest Wealth & Assets survey from the Office of National Statistics. However, property is seen as more lucrative, and the asset most likely to produce the best returns in the long run, according to this research.
The survey showed that 41% of consumers thought an workplace pension scheme was the safest way to save for retirement. This was significantly higher than the next most popular answer – property – cited by just 28% surveyed as the safest option for retirement savings.
But a larger proportion of those surveyed – 45% - though that investing in property would make them the most money. This compared to just 25% who thought workplace pensions would deliver the best long term return.
Both property and workplace pensions were rated far more highly than other savings options: such as ISAs, savings accounts, personal pensions and Premium Bonds. Less than 10% of those surveyed said these vehicles were the best route to maximise returns.
The ONS said the results reflected growing confidence in property prices since July 2010, and a decrease in the returns paid on many other savings and investments – particularly those held in cash accounts.
Investor Confidence Improving Despite Falling Saving Rates
The results are broadly in line with research carried out by the ONS in 2014. However, the number of people rating workplace pensions as the safest option has increased significantly (from 35% to 41%).This is likely to be due to the introduction of the Government’s auto-enrolment regime.
The number of people who think property will be the most profitable option has also increased – although by a smaller margin (three percentage points).
The report also showed that people were more confident about their retirement prospects. More than half of those yet to retire (51%) said they were either ‘very confident’ or ‘fairly confident’ that their income in retirement will provide the standard of living they expected. This is a 10 percentage point increase on the 41% of those who were this confident previously.
Yet despite this increased confidence, the ONS survey found the share of people not contributing to a pension because of "low income, not working or still in education" had risen from 45% in July 2014, to half of people now.
Further data by the ONS on the saving ratio also conveyed a more negative picture of the UK’s savings habits, with people saving less in the second quarter of this year, than they did in the first three months. This is despite the fact that disposable incomes continued to rise.
Are Savers 'Too Reliant' On Property?
Advisers warned that this survey showed UK investors were relying too heavily on property to fund their retirement – which could leave them exposed if house prices stagnate or head south. In addition, property can be a far less tax-efficient investment - and is difficult to turn into a reliable income stream in retirement.
Kate Smith, head of pensions at Aegon said that while the issue of returns was complex, property should not be considered as a sole source of retirement income. She said it was vital that consumers didn’t overlook the additional benefits of pensions: such as tax relief and employer contributions on workplace schemes.
She added: "The positive news is that savings confidence is on the up and we believe the pension freedoms have acted as a great savings incentive."
Government Campaign Boost Confidence in Pension
Catherine Pinkney, founder of Paycircle – an employee benefits provider, said: “Despite robust changes to the pensions landscape over the past couple of years - and a number of high-profile pension scheme ‘black holes’ continuing to hit the press - employer pensions are still considered the safest ways to save for retirement.“ She said this may be down to the rollout of the Government’s auto-enrolment programme – which for the first time offers many employees access to a workplace pension scheme.
But she added: “In spite of a concerted - and often colourful - campaign by the regulator to raise awareness of the workplace pensions overhaul, around a third of UK staff responded that they still know little, if anything, about auto-enrolment.”
This ONS research surveys 70,000 households to ensure it captures a representative sample of UK consumers.
