An increasing number of pensioners are likely to receive their retirement income from private pensions, according to the Pensions Policy Institute (PPI), following the Government's reforms to introduce auto-enrolment into workplace pensions.
Currently, around 28 per cent of pensioners receive their income through private pension plans, while an average of 60 per cent of retirees fund their later years through a combination of both state and private pensions, with low earners likely to receive a higher proportion of their income from the state.
Commenting on the report, Chris Curry, PPI research director, claims that the forthcoming reforms by the Government will "significantly alter the retirement income landscape in the UK".
"The Government's state and private pension reforms are likely to mean that more pensioners will receive income from state and private pensions in the future," he said, adding: "The introduction of auto-enrolment into workplace pensions and the continued shift by employers from Defined Benefit to Defined Contribution pensions in the private sector mean that by 2020 there could be 15 million savers in DC pensions, compared to an estimated five million today."
However, Mr Curry believes that greater reliance on Defined Contribution pensions could leave more individuals exposed to the risks of investment performance, before saying that individuals will need to "convert pension pots into retirement income and engage with the annuity and retirement products market."
Discussing the PPI's previous report looking at the future of retirement income in the UK – which revealed that approximately 90 per cent of annuities purchased are level annuities that do not keep pace with inflation, Mr Curry warned that the amount of income people need during retirement can increase significantly especially as health deteriorates.
Jasper Berens, head of UK retail at J.P Morgan Asset Management – who sponsored the report, said:
"Changes in the pensions' landscape mean it will no longer be possible for individuals to stick their head in the sand when it comes to planning for retirement. The report highlights the necessity for individuals to take a greater interest in planning financially for their retirement during their working life."
Before adding that the "complexity of planning for retirement" means that individuals will need a "greater level of advice and support to ensure they are saving and investing suitably towards their retirement."
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