Following publication of the Office of National Statistics (ONS) latest ‘Pension Trends: Private Pensions 2013′ publication, which reported that the number of active members of occupational pension schemes has reached its lowest level since the 1950s, Scottish Widows is warning that the UK is heading for a ‘perfect storm’ of rising expectations for retirement.
The recent ninth annual Scottish Widows Pensions Report, based on a study of 5,200 UK adults, found that fewer than half (45%) of those who could and should be preparing financially for retirement – those aged 30 or over, who are not retired, and earning at least £10,000 a year – are currently saving enough.
To be saving adequately they should be saving at least 12% of their income or expecting their main retirement income to come from a defined benefits pension. The report also states that one in five Britons (20%) are saving nothing at all for their retirement and over a third are ‘under-saving either somewhat or severely’.
Despite UK pension provision falling to a lower level now than at the height of the recession (adequate provision stood at 54% in 2009) the nation’s aspirations for their retirement income have actually increased by £700 per annum from 2012 to 2013. The two findings show that the average level of annual income people would feel comfortable living on at 70 years old is now £25,200 (from £24,500 in 2012). Based on this year’s average savings levels, an average person retiring at 65 could receive under half the amount they are hoping for.
Competing demands on income identified by a percentage of the 5,200 respondents in the Scottish Widows analysis, as to why people are not saving for their pension pots, include:
- Living expenses – identified by 38%
- Paying off debts – 28%
- Mortgage payments – 21%
- Travelling/Holidaying – 16%
- Financially supporting my children – 15%
- House purchase/deposit – 10%
- Life events (e.g. wedding) – 8%
- Further education for myself – 8%
- Financially supporting family members, other than children – 4%
According to Scottish Widows, the total pot for an average saver could be around £122,000 in today’s terms, which might provide an annual pension of just £3,860. With the addition of the state pension, this would generate a yearly income of approximately £11,400, falling drastically short of the £25,200 annual income people are looking for and equating to a total pension fund shortfall of about £430,000.