Half of working age consumers recently surveyed by Which? are not paying into a pension, most because they can’t afford to. Similar findings emerge in a new HSBC report, with 19% saving nothing for their retirement.
Pension saving shortfall
Both the Which? Quarterly Consumer Report for February 2013 and today’s Future of Retirement report from HSBC show how difficult people find it to save for their retirement, with many failing to contribute to a private pension scheme.
According to HSBC, 18% of those surveyed said the state will be their most important source of retirement income.
With basic state pension currently £107.45 per week, the pension shortfall these individuals face is considerable, falling well short of the ‘replacement income’ needed for a comfortable old age.
Consumer budgets are squeezed
The latest Which? Quarterly Consumer Report confirms that household budgets are still under pressure. A third of those surveyed increased their total level of debt last month and almost 6 million households have dipped into their savings to cover household spending on items like food and utility bills.
Commenting on the report, Which? executive director Richard Lloyd said: ‘Our research paints a gloomy picture of worried and pessimistic consumers, with a majority expecting their household budget to get even tighter than last year.
‘People have as little money to spend now as they had at the start of the recession four years ago, with many simply unable to prepare for unexpected costs or for their retirement.
‘There’s no doubt that the big squeeze has turned into a long squeeze. The assault on real incomes is unlikely to change for the better soon, with consequences not only for individual consumers but also for economic recovery.’
Workplace pension reforms
Despite problems with affordability, saving into a private pension is crucial in the UK to avoid pension poverty. The state pension only provides 32% of average income, compared to 95% in Iceland and Greece and a 57% average in OECD countries.
In order to redress the balance, the government has started a scheme of pension auto-enrolment, where employees will be automatically recruited into a workplace pension scheme. Large firms have already begun to do this and smaller ones will begin during 2013-17, depending on their total number of employees.
Commenting on the pension figures contained in the HSBC report, Pensions Minister Steve Webb said: ‘This is why we’ve introduced the biggest change to pensions for a century by getting everyone saving into a workplace pension.
‘With your contribution being matched by your employer – and with tax relief from the Government on top – we have made sure it really pays to save for your retirement.’