The lack of effective pension planning by a significant number of UK adults has been highlighted in new research (August 2012) from Baring Asset Management, where survey figures reveal that around 44% of working age people do not currently expect their pension to fund their retirement.

The research, which asked people which assets or investments they viewed as funding their retirement, showed that many people are relying on property, cash and even an inheritance to fund their lives post-work – equivalent to 15.7 million people aged over 18 who are not yet retired.

The number of people expecting that cash will form part of their retirement planning increased from 26%, in the last survey in 2011, to 29% this time (some 10.5 million people).  The number that selected property as forming part of their retirement fund also increased two percentage points to 29%, equating to around 300,000 more people.

When over one in ten people have focused all of their retirement planning on property, it is possible to conclude that there may be poor planning in terms of asset allocation, and a poor understanding of the risks involved, by significant numbers of people in the UK.

According to the research from Barings, 17% of people, or 6 million in the UK, said they expect inheritance to help fund their retirement.  This expectation is, as could be anticipated, higher for people in the A/B social segment (the upper and middle classes) where nearly one in four (23%) said that inherited assets formed part of their retirement planning, up from 20% in the last survey in 2011.  However, with the average UK inheritance estimated at around £45,000 per person, many people may be overestimating the role inherited assets may play in helping fund a retirement.

The study also found that one in four (25%) – 8.8 million people – admitted that they simply didn’t know how they would fund their retirement. Clearly for many there is now a recognition that funding for their retirement might not come, as in the past, from a combination of work and state pension income. So why are fewer people effectively planning to address this issue? Are we waiting for someone to step in and save us? Are we all simply waiting for the government’s incoming automatic enrolment into workplace pension provision legislation to begin to roll-out this October?

Commentary from Barings recognises that assets such as cash and property, and instruments such as ISAs and investment trusts, can play an active role in retirement planning, if managed correctly. However, all of these are subject to variations over time in the national and global economy.  For those people that have put aside assets for retirement, it is critical to make sure that these are allocated effectively and efficiently, properly adjusted for risk and with a clear understanding of the timescale involved.

Sources: www.barings.com/uk