Just 45% of people aged over 30 and earning at least £10,000 are making adequate provisions for retirement, according to Scottish Widows, a pensions provider. That is the lowest proportion in the nine years the company has been producing its annual pensions report. It said adequate savings would mean saving at least 12% of annual income.
Lack of savings, outstanding mortgage debt and longer life expectancy mean people are now less prepared for retirement than at the height of the economic downturn, and those approaching retirement face the biggest problems, the report warned.
Although the number of people saving adequately increases above the age of 50, only 53% do save enough. At the same time, the research found that 24% of Britons over 50 have a mortgage, more than one in four have credit card debt and one in 10 has an unsecured loan.
Ian Naismith, pensions expert at Scottish Widows, said: “We are being hit with a triple whammy: continued economic uncertainty, making it difficult to save for the long-term; the age of first time buyers rising as we face troubles getting on the property ladder; and an ageing population. These factors combined create a perfect storm for those heading towards retirement.”
The research, based on more than 5,000 interviews, found that 28% were able to rely on a final salary pension, with a payout guaranteed by their employer. Although slightly up on the 2012 figure of 27%, this was down from 35% recorded in the first report, reflecting the flurry of schemes that have closed in recent years.
One in five people was not saving at all for retirement, while a third were under-saving. Most respondents with pensions were depending on defined contribution schemes, where the eventual pension income is governed by the performance of investments, how much is paid in by the workers and, in some cases, by the employer.
Scottish Widows said that although the number of savers had fallen across the board, those paying into a defined contribution scheme were contributing more than last year: the average amount paid increased from 8.9% to 9.1% during the year.
There was a big gap between what people were putting by and the income they hoped to achieve in retirement. Longer life expectancy and the Bank of England’s quantitative easing programme, among other factors, have pushed down annuity rates, meaning people are getting smaller incomes in exchange for their pension funds.
Researchers found the average level of annual income people said they would feel comfortable with at the age of 70 was £25,200. However, because the total pot they were on track to achieve was £122,000, they could expect an annual pension of only £3,860. Adding in the state pension would give them approximately £11,400 a year. To match expectations, Scottish Widows said the average saver would need to put by £12,000 a year.
Tom McPhail, head of pensions research at the financial advisers Hargreaves Lansdown, said: “For a whole generation in their 40s and 50s now, it is probably already too late. They are going to have to work to 70 or beyond before they can afford to retire. This doesn’t mean they shouldn’t save for retirement; it just means they need to reset their expectations.
“Ten years ago, many people were still able to retire at age 60; in another ten years’ time, 70 will be the new norm.”
The research is the first conducted since the government’s scheme to enrol workers automatically into pensions began in October 2012. That has so far been introduced only at the UK’s largest firms, but will eventually bring up to 11 million people into pension schemes, where contributions will have to add up to at least 8% of a worker’s salary.
