About 30 million people of working age are at risk of running out of money in retirement because they are unsure about how much they should be saving into their pension, according to new research.
The analysis, published last month, found that eight out of 10 people aged between 18 and 65 were not confident they were saving enough for retirement, equating to 30.4m people of working age. Only 23 per cent of people said they knew how much money they would need for retirement, according to the survey by the Pensions and Lifetime Savings Association (PLSA), which represents more than 1,300 pension schemes with 20m members.
Almost half of those surveyed thought the UK government’s minimum mandated pension contributions for workers in auto enrolment— currently 5 per cent of annual salary — was the “recommended” amount to save.
“Millions of savers are in the dark about whether they’re on track for the lifestyle they want in retirement,” said Nigel Peaple, director of policy and research at the PLSA.
“With future generations unlikely to have the same levels of property wealth or final salary pensions, as current retirees do, it’s vital more is done to ensure people can cover the costs of later life.
The PLSA has called on the government and employers to establish retirement income targets to help millions of savers plan properly for later life.
“Savers very rarely consider how much income they are likely to need in retirement,” said the PLSA report.
“For those people who do, there are no widely accepted benchmarks that they can use as a guide. The lack of measures of this sort makes it difficult for people to think about the level of retirement income they are likely to need.”
The PLSA has suggested a set of easy-to-understand retirement income targets should be developed for those saving into a pension scheme to improve savers’ understanding of the amount they need to save to achieve their desired standard of living in retirement.
This approach is used in Australia to help workers understand what sort of retirement they can expect based on their level of savings.
The PLSA has also recommended other measures to increase pension savings including boosting minimum contribution levels for automatic enrolment. This is set to rise to 8 per cent on a band of a person’s earnings next April. The PLSA said this should be increased to 12 per cent of total salary between 2025 and 2030, with at least 50 per cent of this coming from employers to ensure it is affordable for savers.
“Without action from government, regulators and the wider industry there is a real risk millions of people will sleepwalk into a retirement disaster.” Caroline Abrahams, charity director of Age UK, said the report set out a really positive agenda for pension saving.
“We believe targets will help people understand why they save into a pension and help them realise the type of lifestyle they can expect in retirement, which in turn will help them plan more effectively for the future,” she said.
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