Research from UK bank Barclays reveals a worrying gulf between people's expectations about their retirement age and income, and the financial reality, which could leave millions of future pensioners facing a shock unless they address the situation now, the report warns.
Almost half (48%) of workers are not personally paying anything into a pension each month and of those who are, the average contribution is far less than it should be. However, the research also shows that despite warnings in the recent Turner report and A-Day being imminent, the majority of UK adults are adopting an ‘ignorance is bliss’ attitude, with two thirds of people (63%) claiming not to be worried about retirement planning at all.
Barclays’ research reveals that the average worker in the UK would like to retire at 59 but predicts that they’ll realistically be retiring at 63. When asked what level of income they would expect to receive annually following retirement, the average was GBP18,300.
Figures from Barclays Financial Planning suggest the average worker in the UK needs to increase their monthly pension contribution by as much as GBP315 a month to end up with the retirement lifestyle they’re expecting, at the age at which they expect to retire.
The average contribution amongst those who are paying into a pension is GBP54 a month. According to Barclays Financial Planning, this would currently generate an income of just GBP2,054 a year at 63 which, when combined with the full potential from the basic state pension of GBP4,266 per annum at age 65 would bring total retirement income to GBP6,320 per year, which equates to about a third of their expected income. Some people will qualify for the Second State Pension, the annual maximum of which is currently GBP7,598. This would bring their total retirement income at age 65 to GBP13,918, still a third less than the average Brit is currently banking on.
In order for a single 30 year old man with a target retirement age of 65 to achieve his expected pension income of GBP20,560, he would have to increase the amount saved into a personal pension from GBP73 net a month to around GBP345 a month. Equally, a woman of the same age would have to increase her monthly savings from GBP35 to around GBP217 to reach her expected retirement income of GBP15,570. There might be additional income gained from the Second State Pension, which would contribute towards this, but not everyone will receive this pension.
Stephen Ingledew, director of Barclays Financial Planning, comments:
As a nation, we need to get real around retirement and view planning as a necessity, not a luxury. More shocking still is that, when we’ve compared these results to research Barclays carried out ten years ago, little has changed in a decade. People continue to have high expectations around retirement, but contributions remain woefully inadequate and mass inertia persists. For example, ten years ago we found that 23% of workers hadn’t made any pension provision – this is now 48%, so we don’t appear to have moved forward on retirement at all in the past decade.
We each need to take personal responsibility to ensure that we are saving enough, especially if we want to spend much of our time on holidays. Financial education is very important, particularly when we’re seeing just over a quarter (28%) of people reviewing their pension on a regular basis. With putting money aside for future retirement now competing with money for foreign holidays and nights out, it is easy to see how it seems less appealing.