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More than one way to save for retirement

Posted on 25 Sep 2012 by Zopa

Statistics out recently confirmed that fewer people in Britain are saving in a pension than ever before. In fact, only 46% of UK adults are saving enough to fund even a reasonable standard of living in retirement, and this number is down by 8% over just the last two years. But given all that has happened to pensions over the last 15 years, this situation is not that surprising.

Slashed pension tax breaks, scandals around high charges, employers shutting final salary schemes and poor value offered by annuities when your savings are turned to income in retirement - all these things have contributed to Britain falling out of love with pensions.

But we can’t just stick our heads in the sand and try to forget that we are all living longer than ever. Saving for retirement has never been more important.

Savers at all stages of life are attracted to Zopa by the low risk, high rates of interest that easily beat a savings account. But research just completed has revealed that retirement planning has become a very popular reason for using Zopa.

In fact, 32% of people lending at Zopa are doing so specifically as a way to save towards their future retirement or to top up their monthly income having already retired. At 37%, only “saving for a rainy day” scores higher than retirement planning as the most popular reason for lending. Other reasons stated included saving for a child’s education fees or a son’s or daughter’s wedding.

Of those savers using Zopa for retirement planning purposes, 65% are doing so pre-retirement to help build up their retirement saving pot and 35% are already retired and are using Zopa lending to top up their monthly income.

This makes perfect sense. Zopa attracts people who are sensible and responsible with their money and who actively seek out a better deal, whether they are credit worthy borrowers or savers willing to lend. Using Zopa to save for retirement or once retired to supplement monthly income is smart for a number of reasons:

Great returns

Savers lending through Zopa have enjoyed attractive average returns of 5.5% p.a. over the latest 12 months (after charges and defaults). Given that even the rates on the very best Cash ISA have been well below this and that returns on equity-based ISAs and pensions have struggled to even be a positive number, Zopa members have every right to feel pleased with themselves.

Flexible monthly income

Rather than tying up money for decades in a pension, with Zopa you receive monthly repayments of capital and interest which you can automatically relend to grow your funds further or withdraw to use as income. So savers can easily alter how they use Zopa as they approach retirement.

A fairer deal

Most people using a pension will be forced to buy an annuity when they retire. This means that prevailing annuity rates at the time you retire will control how much you get. Annuity rates have been far from appealing for some time, and bigger economic issues are likely to drive them further down rather than up. On top of this, a big concern for many is that when they die, the money in the annuity is gone – there is nothing left to leave to your family. With Zopa you can choose your interest rates and know that you can leave your money to your family or friends as part of your estate.

Of course, the best planning for retirement should involve a good mix of solutions, with appropriate diversification. The research amongst Zopa’s members has shown that this instinct has been followed, and that using Zopa sits sensibly within other arrangements, including ISAs, property, some stocks and shares, and of course company and personal pensions. Zopa members should be congratulated for not only taking advantage of the great rates available, but also the very clever and sensible ways they are using what Zopa offers within their wider financial planning.

Tags: pensions, retirement, tax

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