UK faces £1.2 trillion pension shortfall in individual retirement income

The UK faces a £1.2 trillion personal pension shortfall in individual retirement income equivalent to 80% of UK's GDP in 2008, according to research conducted by Hewitt Associates.

The figure, taken from a survey of 2,000 people conducted in conjunction with YouGov, is based on current level of contributions to a non-state pension, expected age of retirement and individuals' prediction of their level of pension income.

The equivalent calculation from 2004 put this at £0.8 trillion, meaning the gulf between expectation and reality has grown by 50% over the last six years.

On an individual basis, the current reality gap equates to £50,000 per person of working age, equivalent to two years of gross salary for a worker on the UK average salary of £25,000 (based on data from the Office of National Statistics).

In addition, more than two-fifths of workers (42% are not members of an employer-sponsored scheme, while 27% are members of a private sector pension scheme, and 29% belong to a public sector pension scheme.

Lynda Whitney, pension consultant at Hewitt Associates, said: “Saving for retirement is a major issue and one of the largest socio-economic problems to be faced by the new UK government.†

"This saving gap cannot be met through higher state benefits funded by taxing future generations as the proportion of pensioners is increasing relative to the working population. People need to wake up to the fact they will have to save more, work longer and/or live on a lower pension in retirement.”