Which? Money research confirms alarmingly low levels of pension saving, which could condemn many people to a serious pension shortfall when they come to retire.
Older workers also fail to save
In a pensions savings survey of 1,200 people, all of working age, recently conducted by Which? Money, only 6% of the youngest group (aged between 16 and 24) were saving for retirement. It is generally recognised that younger workers are disinclined to save for a pension as many face conflicting demands on their resources, from high rents and transport bills to student loan repayments and mortgage saving. But more surprising was the lack of saving found in older age groups.
Amongst those aged between 25 and 34, only 38% were making any pension provision. The percentage rose slightly for those aged between 35 and 44, to 40% and for those aged between 45 and 54 it was 41%. Amongst those in their final decade of work, the figure rose to 56% but this still leaves almost half in the group that were not putting money aside for their old age. Only 42% across all ages were confident that they would have enough to live on in retirement, with 47% reporting that they were either not very or not at all confident.
State pension poverty
Although the government has recently restored the link between increases in basic state pension and average earnings, the annual sum state pension pays will still come as a shock for many. The current rate is just £5,311 a year (£102.15 per week). If you have no private pension, this may be boosted by pension credit to £137.35 but it is hardly enough to sustain the lifestyle that most people imagine they will enjoy when they retire.
Which? pensions expert Ian Robinson said: ‘Without adequate saving, it’s a sad fact that many of today’s workers will face a disappointing pension gap. Our research shows that a single person hoping to receive a post-tax retirement income of £1,500 per month will need to have saved up a pension pot of £230,000 by the time they reach 65. If they buy an index-linked annuity, to protect their pension income against inflation, the figure rises to £370,000. The only way for most people to accumulate these sums is to save regularly – and start early.’
Workplace pension schemes
For most people, joining a workplace pension scheme is the most effective way of saving. Their contribution is boosted by tax relief and further augmented by an employer’s contribution, which amounts to extra pay. Although the certainty of a final salary or defined benefit scheme is no longer offered to many private sector workers, money purchase or defined contribution schemes still offer a chance to build up a sizeable fund. Converting this to pension income by buying an annuity is the most common option.
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