Although politicians never tire of warning of the horrors of spending our retirement in poverty, it can hardly be a surprise that nearly half a million workers decided a sensible economy in 2009/10 was to pay nothing into their private pension fund.
New figures from HM Revenue & Customs (HMRC) show that contributions to personal and stakeholder pensions - as opposed to the State one gained automatically - fell by more than £1 billion in the last financial year.
Some 430,000 UK residents who had contributed in previous years put in nothing at all this time. Total contributions to private pensions fell from £19.2bn to £18.2bn.
Cynics might conclude that the more 'pension revolutions' are promised by politicians, the faster we lose faith in the whole idea.
Experts are worried too. In his newsletter for clients this month, Peter Hargreaves, of financial advisor Hargreaves Lansdown, warns clients of 'the ticking time bomb' of pensions.
"The infamous baby boomers", he writes, "are starting to retire: 1947 is the biggest birth year on record, so 800,000 people turn 65 in 2012, 150,000 more than 2011."
"More importantly, life expectancy has risen dramatically over the past 40 years. By 2050, the ratio of workers to pensioners will be 2:1."
"The figures are staggering. The current cost of the basic state pension alone is £54.9bn. With more people living longer, this will soar and it is my belief that if these pension commitments are to be met, taxes will have to rise drastically."
Yet, says HMRC, since 2007-8 some 730,000 fewer UK residents are saving in private pensions.
Millions save nothing at all for old age, which is why the coalition Government, in one of its least controversial pronouncements so far, confirmed a new national pension saving scheme is going ahead.
The National Employment Savings Trust (NEST) could get up to eight million people saving in a pension for the first time by 2016.
Employers will be legally bound to enrol workers in NEST once they earn around £7,500 per year. While workers put a minimum 4% of pay into their fund, tax relief will add 1% and employers a minimum 3%, with an annual cap of contributions of £3,600.
But workers will retain the right to opt out of NEST, which hardly looks like a path to riches at whatever retirement age applies in 2030 or 2040.
As for those who do want to save? Well, they are getting more worried by the month.
The professional advice website Unbiased.co.uk says 54% of consumers seeking independent financial advice in October sought guidance on personal retirement planning.
Karen Barrett, chief executive of Unbiased.co.uk, says: "With so many pension announcements made by the Government in October, now more than ever people are thinking about pension options and what is available to them, particularly those nearing retirement age."
Even if the coalition Government delivers its promise of a universal State pension of £140 per week, possibly by 2015, most people will need more to be comfortable when they stop working.
The problem for policymakers is that pension provision has effectively divided us into two camps.
Anybody in a public sector final salary pension scheme, guaranteed by the State, or in one of the final salary schemes offered by a dwindling number of private firms, has little cause for concern.
Everybody else, saving in defined contribution (DC) pension schemes, is largely at the mercy of stock markets and the skills of investment managers.
On present figures, even those who manage to build a £200,000 private pension fund over a lifetime, they will be lucky to retire on £10,000 a year.
There can be no doubt that most of us should save more - much more - for old age.
Bob Bullivant at retirement income specialists Annuity Direct says: "Traditionally, final salary pensions delivered a retirement income of two-thirds of their final salary."
"Now, unless you can save inordinately large sums while working, you might get about 30% of final salary as a pension."
"This should cover day-to-day living costs, while separate funds in ISAs provide the icing on the cake, such as holidays and new cars."
There are two basic tools for long term saving: Pensions and ISAs, a tax shelter where the limit on annual contributions rises to £10,680 in 2011/12.
Hargreaves Lansdown compared their performances over a 30-year period, based on the current ISA maximum of £10,200 per year.
Assuming growth of 6% per year, the ISA pot grew steadily to £548,000, while the pension pot could be worth as much as £913,268 to a higher rate taxpayer enjoying the full subsidy of 40% tax relief on contributions.
On retirement, the ISA pot would generate annual income of £27,000, while the pension pot would give £43,000 a year to basic rate taxpayers, and £57,500 to higher rate taxpayers.
However, using an ISA as a pension pot has two obvious advantages: Money can be taken, tax-free, at any time. And if the saver dies, any money in the ISA pot becomes part of their estate, while it is usually lost for ever if the pension has been drawn.
Helen Howcroft, managing director of Equanimity Independent Financial Advisors, says: "If anyone came to us saying they wanted to save £1,000 per month into a pension, I would be amazed if they did so after we had explained to them the need to put money in different places."
"Pensions are invaluable, but they are inflexible. You can't get your money out in one go, income is taxed, and they are subject to annuity rates which are currently disappointing."
"Clients increasingly see ISAs as a way of saving. They can be accessed in an emergency, and produce an income which can be taken outside total taxable income."
"This can be important at 65, when you have a high personal tax-free allowance of £9,490 if your taxable income is below £22,900."
"If, by contrast, taxable income in retirement is £35,000, your tax-free personal allowance falls to £6,475. When they retire, people can get very angry when they realise even their State pension is taxable."
Helen Howcroft believes that only 5-10% of the working population is currently saving an adequate sum for retirement - which she thinks should be about one third of their net pay, after tax and other stoppages.
"The rest of the population is in total blind ignorance," she says. "The fact is that many people who own their own home will have to spend retirement in a one-bedroom flat if they are to maintain living standards at a level which sits comfortably with what they enjoyed during their working lives."
Tom McPhail at Hargreaves Lansdown says: "The great virtue of pensions is that they are predictable and reliable, while ISAs are exposed to some degree of investment risk, and income levels can fluctuate."
"Typically, people end up with more savings in pensions than in ISAs. In tax efficient terms, pensions are a better bet."
"But as people are finally realising, planning finances for retirement isn't only a matter of tax efficiency."
:: Information: Hargreaves Lansdown (0117 980 9926 and www.H-L.co.uk); Equanimity Independent Financial Advisors (0207 713 9356 and www.eq-ifa.co.uk); Annuity Direct (0500 506575 and www.annuitydirect.co.uk), Unbiased.co.uk (0800 085 3250).
Poundnotes
:: With an estimated 700,000 homebuyers still on standard variable rate (SVR) mortgages, and potentially exposed if rates rise, Barclays offers 'The Great Escape' remortgage: A tracker at 2.18% above Bank base rate (now 2.68%) with maximum LTV 70%, no application fee, free legal work and valuation, plus a £300 cashback to cover any exit fee charged by the existing lender.
The deal also includes the 'Switch & Fix' option available on all Woolwich trackers: Borrowers can switch to a Woolwich fixed-rate mortgage at any time without paying any early repayment charges, and they benefit from a tracker rate while base rate stays low.
Andy Gray, head of mortgages at Barclays, says: "Many people don't remortgage because of the possible cost. Our package cuts those costs out and with many SVRs at 3.5% or more, customers could save £60 per month or more than £700 annually on a £150,000 repayment mortgage. If their SVR is 4%, they will save more than £1,200 annually."
Enquiries: 0800 197 1081 and www.barclays.co.uk.
:: Why lock money away for years when easy access rates are nearly as good, asks leading comparison site Moneysupermarket.com?
It says Nationwide BS has upped the rate on its MySave Online Plus easy access account to a market-leading 2.99%, 0.19% higher than the top easy rate available in July.
By contrast, in the three-year fixed-rate bond category the top rate dropped 0.15% - a significant decrease over the same period. In the one-year fixed bond category, there has also been a drop of the top rate from 3.15% to 3%.
Kevin Mountford, head of banking at moneysupermarket.com, says: "Fixed-rate bonds are great if savers with a lump sum can afford to lock away for a few years and there have been some fantastic rates available this year, given the backdrop of a historically low Bank base rate and high inflation as savers struggle to earn a decent return."
"However, those rates are softening and banks and building societies are turning their attention to the easy access market instead."
"Nationwide's MySave Online easy account paying 2.99% almost matches the best rates on one-year fixed-rate bonds. But top easy access rates can have catches attached."
"Nationwide's MySave Online account for example only allows one penalty-free withdrawal a year. If you dip into your money more than that you won't earn interest in the month the withdrawal is made. Easy access account rates are also variable, so savers must be vigilant to maximise returns."
:: How much dosh makes you happy? Skipton BS says Londoners need to save £254 per month to reach their financial happiness levels and only manage to save £214, while those in Eastern England are content if they save £167 per month. Currently they save only £151, £16 short.
The happiest folk, in financial terms, live in the East Midlands and Scotland. If they saved another £1 and £5 per month respectively, they would enjoy financial contentment.
Skipton BS says 24% of the population has no savings at all, while 55% of households save less than £100 per month.
Skipton's head of products Kris Brewster says: "Our research shows that having a savings safety net can go a long way in bringing financial happiness to our lives."
:: The bigger the beatings for President Obama, the more attractive the US looks to fund managers. According to the Association of Investment Companies (AIC), valuations for many leading businesses in the US are at highly attractive levels and longer term investors are moving in.
Marc Shaw, portfolio manager at JP Morgan US Smaller Companies, says: "As investor confidence returns, you could see these names begin to outperform."
"In environments when growth becomes cheap, you can see value investors increase exposure in sectors which have historically been dominated by growth investors."
Best savers & borrowers (Nov 5/2010)
:: High five savers
Phone No Rate Account Period Deposit Interest paid
SAGA www.saga.co.uk 4.50% (F) Fixed Rate Savings Five Year Bond £1 Yly
United Trust Bank 0207 190 5555 4.50% Fixed Deposit Five Year Bond (P) £500 Yly
Manchester BS 0161 923 8015 2.91% Premier Notice Issue 16 60 Days £1,000 Yly
Stroud & Swindon BS 08457 252423 2.90% 90 Day Notice 90 Days £1,000 Yly
Santander 0800 234 6065 2.85% Flexible ISA Issue 3 Instant £1 Yly
:: Top five borrowers
Phone No Rate Period Max% Adv Fee Incentive
HSBC 0800 494999 2.29% for term 60% £99 Yes
First Direct 0845 610 0100 2.59% variable for term 65% £99 Yes
ING Direct 0845 603 8888 2.85% disc until 30/11/12 70% none Yes
Furness BS 0800 220 568 3.29% (F) for three years 80% none Yes
Market Harboro BS 01858 412250 3.45% for term 80% £495 Yes
Code:
*K- Operated by Internet, Telephone, or Post
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice).
