The research found that despite Scotland being the best region in the UK for taking out Life Insurance and Critical Illness cover, when it comes to pensions, almost half of Scots are not saving enough towards their retirement.

The research found that the difference between retirement expectations in Scotland and the amount of money being set aside is vast. Scottish Widows also found that three quarters of those working in Scotland between the state pension age and 30 wanted to retire by 65 at the latest.

Only 12 per cent of those asked in Scotland revealed that they were willing to work until the age of 70, whilst that number was 20% in the UK as a whole. Scots believe that they will be able to realistically retire at 62.

The Edinburgh based company conduct a UK pensions report every year, and this is the seventh they have produced. Each different report has shown that the gap between what Britons are saving, and the amount they want to retire on is continuing to grow.

75% of Scots asked recognised that they needed to take more responsibility for their retirement finances, although the Scottish savings ratio, the percentage of income being put aside for a pension, has fallen to 9.2%, just below the UK average of 9.3%/

Scottish Widows feels that this number needs to increase above 12% for a comfortable retirement, and explained the average worker in the UK needs to be saving an extra £58 a month towards their retirement.

Only 52% of Scots are saving enough money towards their retirement, and when you take away those in a final salary scheme through work, that then becomes just a quarter. 20% of Scots are failing to save any money at all towards their retirement.

Scottish Widows believe that automatic enrolment into workplace pensions from next year will encourage more people to start thinking about their savings.

The Department for Work and Pensions has revealed that 30% of those in the UK who are saving in a company pension scheme have no idea what their employer is contributing to their pension. The report has highlighted an urgent need for independent pension advice among UK workers, who may be unable to predict whether they will have sufficient income to match their retirement expectations.

The DWP report also found that in the private sector, 59% of people do not currently pay into the pension scheme offered by their employer.

Employees who do not understand the breakdown of their total pension contributions will also be unable to compare their company pension scheme with the government’s NEST scheme, to be launched from 2012. The NEST scheme will be based on pension contributions of 8% of salary, made up as follows: worker 4%, employer 3%, government 1%.

NEST will offer a company pension for almost all workers, and, in order to overcome ‘pensions inertia’, workers will be automatically enrolled in the scheme, which will be gradually implemented and fully operational by 2017.  Every worker over 22 and earning more than £7,425 per year will be eligible for the NEST.

Employees will be enrolled into NEST after three months of working for their employer. This delayed start reverses a previous plan to enrol workers from day 1 of their employment, and is designed to facilitate companies which use a high proportion of summer workers or casual staff.

The government has this week confirmed that the National Employment Savings Trust (NEST) is to proceed in a modified form from 2012. The scheme will provide structured pension planning for almost all workers, who must be provided with a pension by the end of the scheme’s roll-out period in 2016.

In order to combat ‘pensions inertia’, all workers who still do not have a company pension will be auto-enrolled into the NEST, provided they are 22 or over and earn more than £7,475 per year. Those who wish to, may then opt out again. The NEST pension contributions will equal 8% of salary, consisting of 3% from employers, 4% from employees and 1% from government. On completion of the scheme it is expected that over 80% of workers will have a pension, compared with the average uptake of 55% in companies that have a scheme currently in place.

The NEST may not be the place to be for all workers, however, and there are concerns that anyone with less than 20 years left to retirement may not be invested in the NEST pension scheme for long enough to see any worthwhile benefit. It has also been suggested that there may be a 2% levy on employee contributions, to repay the £600m cost of the loan made by government to fund the setup of the scheme.

There has been one modification to previous proposals, however.

It had been feared that a requirement to enrol workers as soon as they joined a company might have resulted in a logistical nightmare for employers with a large number of casual workers. The new proposals now give employers a 3-month grace period, before a worker must be enrolled.

Pensioner couples now take a quarter of their pension income from work in retirement, according to new data published this week by the Office for National Statistics (ONS).

In 2009, the average pensioner couple had a joint weekly income of £564, equivalent to £29,000 a year.  The general increase in income of retired households means that they are enjoying a better average pension income than in previous years, although research has shown that many continue to work out of financial necessity, and have sacrificed their dream of retirement, because their private pension savings have failed to deliver the lifestyle they had planned for, after work.

Pensioners now make up just 38% of the poorest fifth of all UK households, showing a marked improvement from the level of 56% in 1977.

The ONS has analysed the sources of pension income for retired couples, and found that while 25% comes from private pensions and company pensions, 35% came from state pensions , and 25% from earnings from continuing work.

At the lower end of the scale, however, the ONS has pointed out that over half of single pensioners receive less than £10,000 per year in total  pension income, and that the poorest 20% of pensioners get by on less than £197 per week.

In its previous-year data for 2008, the ONS showed that 31% of pensioners depended on the Basic State Pension and pension credits as their sole pension income.

EU statistics have recently shown that the UK basic state pension is the lowest state pension in Europe, at  just 30.8% of average working pay, compared with an EU average of 60%.

This reveals the growing pensions income challenge faced by future pensioners, at a time when longevity is increasing more quickly than ever before.

Today’s over 55s, for example, will live for an average of 88 years, typically retiring at 63 years and 6 months.

With an average of 44 years in work and a retirement lasting 25 years, each year of retirement is funded by just under two years of work. This is a difficult imbalance, considering how little most people save for their retirement planning every year, Aviva said.

As longevity increases, what has been termed the pension incomes ‘timebomb’ will place an unsustainable pressure on the individual person’s income from pensions.

The need for independent pensions advice to consider a personal pension, or one of the many other pension types, has never been more clear.

Demographic trends also indicate that the situation is likely to worsen in future.

Not only will people setting out on their working lives today live for longer, they are likely to start working later.

Even those who are able, in the future, to enjoy an early retirement at 60, could be retired for almost as long as they are working. This means that each year of retirement would need to be funded by just over a year of work.

The largest single source of income for the over 55s today is the government’s basic state pension and associated benefits (24%) followed by company pensions (16%) and wages (13%). However, as the Government has indicated that it will be looking more towards self-funding of retirement, and many companies close their generous final salary pension schemes, this does not bode well for future generations.

Over two-fifths of larger companies in the UK are looking at ways of reducing the cost of their company pension schemes, in a move which could adversely affect pension provision and pension income for employees.

The news reflects a general trend towards reduced commitment to company pension schemes throughout the private sector, and underlines the need for employees to seek quality pension advice on their retirement planning and projected pension income.

The Association of Consulting Actuaries has interviewed top executives at over 200 employers with company pension schemes, and found that 41% of them believe they are ‘highly likely’ to cut the cost of their company pension scheme, after the launch of the National Employment Savings Trust (NEST) from 2012.

NEST is the government-backed initiative to make company pension schemes widely available through all companies, and under current proposals will be gradually introduced on a phased basis from 2012-2017.

While there are suggestions that the scope of the NEST scheme may yet be modified ahead of the 2012 launch date, several elements in the plan, as it stands at the moment, are a source of concern for employers.

All employees are to be ‘auto-enrolled’ into the company pension schemes that must be put in place to meet the requirements of the NEST. Only after auto-enrolment can those who do not wish to contribute to the company pension scheme leave it, by actively ‘opting out ‘ of NEST. This strategy is designed to combat the tendency of individual employees towards ‘pensions inertia’ by forcing them to opt out, rather than opt in, to their company pension scheme.

For UK companies with a company pension scheme already in place, pensions uptake is on average 55%, and is predicted to reach over 80% after the auto-enrolment process. This will impose significant additional administrative costs on all company pension schemes.

The Association of Consulting Actuaries also found significant opposition to several other requirements with the NEST scheme. Their results revealed that 64% would like the removal of rules on employees who opt out, requiring that they be re-enrolled every 3 years.

Furthermore, 75% of employers oppose the requirement that employees with less than 3 months’ service should also be auto-enrolled. This would force the enrolment from day one of new employees, who may be in a probationary period with the company, and would also force companies who use short-term seasonal workers to include them immediately in their company pension scheme.

Latest government proposals to link private pension income to the Consumer Prices Index will increase the negative effects of inflation on pensions, says Mallowstreet, a leading panel of pension industry experts.

Previous proposals had been to link both state and personal pension incomes to the Retail Prices Index (RPI), which generally rises faster than the Consumer Prices Index (CPI) and therefore provides a better safeguard against inflation. In recent years, the CPI has generally risen 0.7% per year less than the RPI.

In the next 5 years the gap between the two indexes is expected to be higher, and 1.2%, according to calculations by the Office for Budget Responsibility.

The CPI link was first proposed for state pensions, but the Department for Work and Pensions has claimed that it is appropriate and consistent to take the same approach for private pensions. 

Because pensions are a long-term investment, the differences in the rates are magnified over time. Mallowstreet estimates that pension incomes linked to the CPI could be worth up to 25% less than pension incomes from private pensions linked to the RPI.

The Government now proposes to use the CPI as the index for linking increases in the basic state pension, state benefits, and large public sector pension schemes. This will lead to huge savings in the Government’s pension costs, it will considerably deplete pension savings and pension income from pension schemes.

Mallowstreet has now written to the government asking for a full consultation period, before the proposed changes go ahead.

The pensions income of a typical middle-class UK person with a private pension could have been based on pensions savings that would have been up to £100,000 larger, had these hidden charges not been taken over the years. The comments were made this week by David Pitt-Watson, a senior exective of Hermes Fund Managers, and a consultant to the BT pension, the country’s largest company pension fund.

Mr. Pitt-Watson said that if a typical British and a typical Dutch person save the same amount of money for a pension, the Dutch person will end up receiving up to 50% more in pension income upon retirement.

This, he said, was due to the more transparent and efficient architecture governing Dutch pensions savings. The likelihood of UK pension savings being whittled away by fees and levies was a particular problem in higher-cost personal pensions and was, therefore, most likely to represent a problem in pensions planning for middle to high earners.

As an example of how the fees in private pension schemes make a difference to pensions planning, Mr. Pitt-Watson used the scenario of a 25-year-old who starts with pensions savings of £1,000 per year, raising that by 3% a year as he goes to account for inflation.

Assuming a 6% annual return, that would result in  pension savings at age 65 of £248,170 providing pensions income for the next 20 years of £16,080 per annum.

However, if the same saver had kept their pensions savings in a scheme charging a fee of 1.5% a year, his pension income would be 60% lower, at only £9,900 a year.

Government’s announcement this week that the retirement age of 65 is to be scrapped in October 2011 has given workers the freedom to plan to work beyond 65, for the first time. With no default retirement age, employers have lost the right to require an employee to retire, simply by giving them 6 months’ notice before they reach their 65th birthday.

HSBC questioned over 2,000 UK adults over 50 and found that most would intend working beyond 65, not as a lifestyle choice, but simply through the anticipated need to earn extra cash in retirement.

Recent information in a separate survey from Prudential showed that over half (59%) of UK adults have realised they have not saved enough for their retirement, and believe they will outlive their pension savings.

The Office for National Statistics (ONS) calculated that currently 1.45m people over 65 are still in full-time employment, which means that 12 per cent of ‘retired’ people are actually still in a full-time job. The figure has risen by 84,000 in the past year.

HSBC also believes, however, that many are considering a longer working life as an opportunity to seek out new challenges. David Wells, HSBC’s head of pensions, believes that those now rethinking their pension planning in order to work longer are seeking ways to embrace new skills and challenges that may now only become possible after careful financial planning during their earlier working life.

Making a detailed pension plan to secure a pension income from company or private pensions is best done with quality pension advice, Wells added, and in future is as likely to factor in a working old age, rather than a traditional leisure-based retirement.

The Government has changed its mind again on planned changes to the age for taking the basic state pension.

Work and Pensions Secretary Iain Duncan Smith has said that the age could now be raised to 68, and sooner rather than later, in a newspaper interview this week. A more exact timing for the intended change was not given.

For the Government, a deferment of one year in the age for the basic state pension would add 1% to GDP, he claimed.

Mr. Duncan Smith also suggested that the age for taking the basic state pension could be indexed to change with increases in life expectancy, as already happens in Denmark.

For some time, the Government has been planning a more rapid increase in the age for taking the basic state pension, compared with the schedule of the previous Labour Government. Labour had envisaged taking the age for the basic state pension to 66 by the year 2024 and to 68 by 2046, reflecting new data on longevity which shows that we are now expected to live into our 80s.

A Government source was quoted in ‘The Times’ newspaper within the past month as saying that the state pension age would now rise by 1 year every 5 years, until the age for taking the basic state pension reached 70 around the year 2035. This would have meant that a person aged 45 today would have been the first person unable to draw their basic state pension until they reached 70. That proposal would now seem to have been superceded, given the words of Iain Duncan Smith.

The Government’s constantly changing thinking on the entire pensions area has left even the Revenue (HMRC) admitting that they have difficulty keeping up. Pensions experts have described the Government’s numerous proposals and counter-proposals over the past year as ‘tinkering’ around the edges of the pensions system.

In addition to the basic state pension, Government has suggested it may also review the role of the National Employment Savings Trust (NEST), to change the scope of the scheme. The NEST scheme was planned to provide a pensions income through company pensions schemes to all who did not actively opt out of the scheme. However, pensions minister Steve Webb has pointed to the huge administrative cost to employers of meeting the requirements of the NEST scheme, and suggested that utilising existing infrastructures to provide a more generous basic state pension could be a more reasonable option.