The average employee expects to need a pension of around 65% of their salary before retirement, according to research from Towers Watson.
Around 13% expect to need less than half their final salary, 25% expect to need around half their final salary and 27% expect to need a retirement income of at least 80%.
The report, ‘Pension adequacy – the challenge for DC pension plans’, shows an understanding of the retirement outcomes which members require and are likely to receive from their plan, and how these outcome needs and objectives vary across a plan’s membership, is critical to a fiduciary in setting a plan’s investment and member engagement strategy.
The research also found a majority of workers would like to retire between 55 and 60 years of age, but most are realistic enough to know that is unlikely, and will aim to retire between age 60 and 65.
Gary Smith, senior defined contribution (DC) consultant at Towers Watson, said: “While increasing contributions and encouraging earlier employee enrolment will obviously increase an individual’s retirement savings, these outcomes are costly to an employer and may not be feasible.
“Outside of increasing the size and/or duration of contributions, DC plan fiduciaries have a vital role to play in helping members achieve a better pension outcome and better understanding of the risks they face.
“Expectations vary according to the level of income of workers. Not only in what they want to achieve but also what they are likely to achieve. Lower-income individuals, for example, find it easier to achieve their expected income due to lower salary growth and greater State benefits.
“But as they are offered more protection by the State pension system they are also more at risk if this changes. And with reforms to State pensions and the likelihood of annuity prices continuing to decline with increased life expectancy, retirement incomes are expected to be on a declining trend in the future. The average desired income in retirement (65%) is then going to be difficult to achieve.”
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