What factors have contributed to the decreasing pension provision in the UK
The traditional model of retirement relied heavily on workplace pension schemes and state-provided pensions. However, there has been a gradual shift towards placing greater responsibility on individuals to save for their retirement. Several factors have contributed to this:
- Shifting demographics: An ageing population and increasing life expectancy have strained the sustainability of traditional pension systems. With fewer workers supporting a growing number of retirees, the financial burden on pension funds has become increasingly challenging.
- Changing employment patterns: The rise of the gig economy and the prevalence of short-term contracts have resulted in irregular income streams and limited access to workplace pension schemes for many individuals.
- Decline of defined benefit schemes: Traditional defined benefit pension schemes have become less common as employers seek to manage costs and shift the risk onto employees through defined contribution schemes.
The growing importance of property in retirement planning
Amidst the declining pension provision, property ownership has emerged as a crucial asset in retirement planning. Between 2001 and 2021 the average UK house price increased by 216%, whilst there are now more homeowners that own their property outright, than those with a mortgage.
Moreover, as mentioned above, the onus is now commonly upon the individual to save towards their pension. Currently however, average UK total pension wealth for individuals aged 55-64 was estimated to be £358,000 in 2020, falling significantly short of the recommended target of £480,000.
This indicates a gap in private pension savings, leaving individuals reliant on other assets, such as property, for retirement security.