Alexander Forbes research: DC pension members are not saving enough

Employees in the private sector who are saving into a defined contribution (DC) pension scheme need to pay in much more to avoid poverty in retirement, according to research conducted by Alexander Forbes.

The Alexander Forbes National Pension Index showed that in Britain the average employee in such schemes has lost more than £10,000 per annum of their future retirement income and would need to save 33% of salary to make up the shortfall.

In addition the index showed that, while the average 30 year old in 2000 could have expected contributions of around 12% of salary to be enough to provide a two-thirds income in retirement at age 65, that same saver would now be expecting an income of just 45% of final salary.

Investment under-performance, historically low gilt yields and significantly higher annuity prices have conspired to mean that experience has trailed expectations.

To get back on track, the typical investor (now 41 years of age) would be required to invest 33% of final salary. Office for National Statistics (ONS) data showed that the average total (employer and employee) contribution rate is just 8% of salary, which is 66% of the original savings rates and just 25% of the rate currently required to restore expectations.

Steve Watson, head of DC at Alexander Forbes Consultants and Actuaries, said: “We want people to wake up to the pension crisis in the UK.

“There is lots of media coverage about lack of pension savings – but to date few people really understand what it means to them in hard cash. The Alexander Forbes National Pension Index aims to show the man in the street with a DC workplace pension where they actually stand.†

“It is vital that people begin to understand the figures or we will have a whole generation retiring on a fraction of their working salaries.”

Read more articles on DC pension savers