The retirement reality check: Why proactive pension planning is essential

The contradiction at the heart of pensions policy

Pensions policy is notoriously complex. Successive governments have wrestled with the challenge of ensuring people are financially secure in retirement while maintaining the stability of state support. As the population ages, this challenge only grows.

In the last 10+ years, two major interventions have reshaped retirement planning: auto-enrolment and pension freedoms. While both policies aim to improve financial security later in life, they pull in different directions.

Introduced in 2012, auto-enrolment aimed to boost the numbers of people saving into a pension. By 2017, all eligible employees were automatically enrolled in a workplace pension, ensuring that most employees had a pension without having to take any action themselves. Auto-enrolment has been one of the biggest policy successes of the past decade. Prior to its implementation, only 32% of private sector employees were enrolled in a workplace pension but by 2021, this had risen to 75% (14.4 million savers).¹

But the very strength of auto-enrolment, it’s passive ease, also creates problems. In 2023, contributions from employers accounted for 64% of savings, with only 26% of savings being contributed by employees. The average amount saved per employee has also dropped in the past couple of years, from £3,950 in 2021 to £3,210 in 2023.²

In the midst of auto-enrolment rollout, the then Chancellor George Osborne's 2015 Budget shocked the sector with the inclusion of pension freedoms. Those approaching retirement were given much greater freedoms over how they could choose to use their savings, with all restrictions were removed. This meant that most people stopped buying annuities. It also meant that someone could now exhaust all their pension savings without consideration of what funds they’ll live on for the rest of their life. While this flexibility was generally welcomed, it left many facing decisions they hadn't expected and weren't prepared for. The ongoing debate about the Advice Gap and the Advice/Guidance Boundary stems from this shift.

The result? Without a mechanism that encourages people to engage with their pensions, many spend years passively building a pension pot only to realise late on that they haven't saved enough and that they alone must decide how to manage their retirement income. Indeed, the CEO of the Financial Conduct Authority (FCA) has recently expressed concern that 54% of Defined Contribution savers retiring between now and 2060 are at risk of being under-savers or financially struggling.³

A spotlight on the retirement confidence gap

Our research into the financial health of the nation highlights that the level of individual engagement with pension savings and retirement planning remains far too low.

• One in five have never reviewed their pensions 
• One in five believe they need less than £50,000 in their pension pot to live moderately well in retirement 
• Nearly a quarter say saving monthly for retirement is not a priority

However, our report also highlights a clear solution: those with a financial plan in place feel more confident about their retirement prospects, across all income groups. They are also more engaged, prioritising their pension savings and regularly reviewing their progress. Ideally, individuals should seek professional advice to help form a personalised retirement plan that addresses their unique needs and goals. Yet, for those who don’t have access to advice it’s still crucial to take the initiative and create a plan. By establishing clear saving goals and regularly assessing your financial situation, everyone can improve their retirement confidence and work towards a more secure financial future.

Five key actions to change the nation’s retirement reality

At St. James's Place, our mission is to help people realise bolder financial ambitions, including achieving the retirement lifestyle they desire.  We know that the earlier someone starts planning, the greater the rewards. The power of compounding can turn even small, regular contributions into a substantial pension pot over time.

1. A national conversation on pensions

We must foster a national conversation about the value of pensions; encouraging people to actively engage with their plans for the future, and the very real benefits of doing so. By October next year we expect the Pensions Dashboards to be operational, providing consumers with clearer insights into their retirement savings. Whilst this is a step in the right direction, it won’t be sufficient to overcome the apathy with which pensions are currently regarded. Awareness is the first step towards action, and this conversation is critical if we are to help change the direction of the nation’s retirement reality.

2. Addressing the advice gap

The FCA’s Financial Lives survey 2024 found that only 9% of UK adults received financial advice in the last year.⁴ There are sustained efforts underway by Government and the FCA to address the advice gap through the Advice Guidance Boundary Review, including by introducing new tools such as Targeted Support. At SJP, we are an active part of the Industry Working Group shaping these proposals.

3. Enhancing financial education

We firmly believe that a step-change in the provision of financial education is needed to boost the low levels of financial literacy we see in the UK. We have joined calls for financial education to become part of the core curriculum for schools. Too many young people are leaving school and entering the workforce with little understanding of what a pension is and how they could benefit from years of compounding if they start saving early.

4. Stability around the tax treatment of pensions

Pensions are a fundamental part of retirement planning and are necessarily long-term savings products. Speculation over changes to the tax treatment of pensions can undermine the stability of pensions as a safe place to save for the future. We saw ahead of the Autumn Budget that speculation about a possible reduction in the tax-free cash allowance led many people to make poor decisions and withdraw money from their pensions. At SJP, advisers spoke to many clients to persuade them not to act on the basis of speculation and therefore prevented adverse outcomes – but there is a broader point here in ensuring the pensions landscape is stable for savers. Pensions being brought into Inheritance Tax was a sting in the tail of the Autumn Budget. If people question whether the Government might move the goal posts, then they’re less likely to trust pensions as being the best place for their long-term savings. This can lead to poor outcomes: for those individuals and for society.

5. The value of advice

Individuals can move the dial on their pensions planning at any stage in life - but the earlier the better. The value of advice is clear: a financial plan helps individuals make informed decisions, stay on track, and make the most of their money. Our research into the Real Value of Advice also found that among those who have received advice or guidance, 84% say they benefitted mentally or emotionally.⁵

Get in touch  

A financial plan is the secret to a great retirement. Taking financial advice can be a gamechanger so take the first step today and get in touch. A financial adviser can help turn your retirement hopes into retirement realities.
Sources
¹On a roll? The first decade of automatic enrolment into workplace pensions - Institute for Fiscal Studies - September 2022
²Workplace pension participation remains stable; savings gaps persist - Pensions Age Magazine - July 2024
³On the right track: Connecting consumers, products and growth - Financial Conduct Authority - March 2025
⁴Financial Lives cost of living (Jan 2024) recontact survey - FCA - April 2024 
⁵Real Life Advice Report - Opinium surveyed just under 12,000 UK adults nationwide in two polls between May and August 2024 on behalf of SJP. The survey – our largest consumer survey to date – is based on interviews and real life stories exploring the value of financial advice, our attitudes surrounding it, and its future - September 2024

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