UK private pension contributions slump

The decline in pension savings is acutely evident from data
compiled by Prudential. In its first analysis this year, the
insurer found that the average voluntary contributions to private
and company schemes had fallen from £279.38 ($430) per month in
March 2007 to £144.57 in March 2008.

The rot continued and by September the average contribution had
dwindled to £129.35, giving a total decline of 54 percent over 18
months.

A worrisome indication of worse to come is provided by the UK
unit of French insurer AXA, which in a research study published in
November revealed that 1 in 12 contributors to private pension
schemes are teetering on the brink of halting their pension
contributions altogether.

This proportion equates to about 1.5 million workers and
estimates AXA estimates the total amount involved could be as much
as £34.97 billion should all 1.5 million stop making contributions
for two years.

For individuals the impact on retirement savings would also be
significant. AXA estimates that a two year break could cut a 25
year old man’s occupational pension pot by £33,800 when he
retires.

A 35 year old would be worse off by £28,700, a 45 year old by
£16,900 and a 55 year by £8,500.

The situation comes at a time when the vast majority of
independent financial advisors (IFA) surveyed by the UK unit of
Dutch insurer Aegon in June indicated that the retirement products
available are not meeting their clients’ needs.

Notably, 78 percent of IFAs said inflexibility of retirement
products is causing people to choose alternative means of saving
for retirement.

Aegon found that the greatest need is for a retirement products
that can provide an income that can rise and fall according to
changing needs during retirement. Of FSA’s surveyed, 86 percent
stated that this is what is being demanded by their clients.

The only product of this type available does not provide a
minimum income guarantee, a feature 63 percent of IFAs said their
clients demanded.