The number of employees saving adequately for retirement has hit an all-time low, yet aspirations for pension income have risen, according to research by Scottish Widows.
The annual Scottish Widows pensions report, which surveyed 5,200 Britons, revealed that less than half (45%) of those who could and should be preparing financially for their retirement (those aged over 30 and earning at least £10,000 a year) are currently saving enough.
One-fifth (20%) of respondents are saving nothing at all for their retirement and over a third are under-saving either somewhat or severely.
The research also found:
- The nation’s aspirations for their retirement income have increased by £700 per annum from 2012 to 2013.
- The average level of annual income respondents would feel comfortable living on at 70 years old is now £25,200, up from £24,500 in 2012.
- Almost 5.3 million (24%) respondents aged over 50 have a mortgage, over one in four (25%) have credit card debt and one in 10 (8%) have an unsecured loan.
- Out of those respondents who are already retired, a third (32%) are still paying off debts and excluding mortgage debt, the average amount owed is £5,682.
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Ian Naismith (pictured), senior manager in retirement income and planning at Scottish Widows, said: “We are being hit with a triple whammy of, firstly, continued economic uncertainty making it difficult to save for the long-term; secondly, the age of first-time buyers is rising as we face troubles getting on the property ladder; and thirdly, an ageing population.
“These factors combined create a perfect storm for those heading towards retirement. While we are becoming more aware of the need to save for retirement, we must do more to ensure that we have a comfortable old age.”
The Scottish Widows report is indeed a further stark reminder of the pensions crisis facing the UK and looming ever larger on the horizon.
A sizable proportion of the UK’s population face a bleak financial future with the prospect of barely adequate incomes in retirement. Auto-enrolment should have started much earlier following the Pension Commission report as long ago as 2006 – and even now the minimum contribution levels proposed may be too little too late.
The message must go out loud and clear to the working population of the need to accept personal responsibility to plan and prepare for their later years. Working longer, saving more or accepting a level of poverty in old age are inevitably the unpalatable choices available to many.
The government must play its part in all of this by freeing up restrictions on pensions schemes which create inflexibility and act as a barrier to saving. There is a lot that can and must be done in the face of the social and economic consequences for both the pensioners and the workers of the future.
For a whole generation in their 40s and 50s now, it is probably already too late. They are going to have to work to 70 or beyond before they can afford to retire. This doesn’t mean they shouldn’t save for retirement, it just means they need to reset their expectations.
For those in their 20s and 30s there is still time to make a significant difference, but only if they can be persuaded to engage with their retirement savings. Regrettably, too much of current pension policy is specifically intended to distance people from taking responsibility for their pensions and investments.
Ten years ago, many people were still able to retire at age 60, in another ten years’ time, 70 will be the new norm.
A substantial rise in interest rates (and therefore annuity rates) could be enough to help offset the recent years of under-saving for some, however there is no visible prospect that this is about to happen.
As the working population is enrolled into company pensions over the next few years, the priority should be to increase contribution rates. The default 8% is inadequate to build a decent retirement income; it is a good start but more will be required.
Everyone should spend a few minutes with a pension calculator to work out how much they should be saving and when they might be able to afford to retire.
Those already saving for retirement should make sure their money is working as hard as possible for them. Options include making the most of their investment choices, consolidating old pensions to make their management easier, and reducing charges by switching to lower cost arrangements.