Millions of savers are facing a financial shock in retirement as two in five over-55s have less than £50,000 saved in a pension, alarming research reveals.
More than seven million people in England and Wales are at risk of living in poverty in retirement, because their pension pots will fall far short of the sum to give them a comfortable lifestyle.
A report by stockbroker Interactive Investor seen by Money Mail today lays bare the extent to which workers are undersaving for their later life.
Pensioners need £59,900 in their retirement nest egg on top of a full new state pension to be able to afford the bare necessities and very lowest standard of living in retirement, according to calculations by Alice Guy of Interactive Investor.
That is if they secure their annual income by buying it as an annuity.
Bare minimum: Pensioners need £59,900 in their retirement nest egg on top of a state pension to be able to afford the bare necessities and very lowest standard of living in retirement
These contracts exchange a cash lump sum for a guaranteed yearly income until death.
However, fewer people have opted for guaranteed income annuities in the past few years. Regardless, two in five people approaching or in retirement have not saved enough for this.
More than a quarter of over-55s say they have no workplace or private pension savings at all, a survey by consultancy Barnett Waddingham finds.
That means they will be entirely reliant on the state pension, which pays just £203.85 a week.
Paul Leandro, of Barnett Waddingham, warns that Britain is walking into a ‘pensions timebomb’. In order to meet the ‘minimum’ standard of living in retirement, you need to draw an income of £14,300 a year before tax.
Pensions industry guidelines estimated that last year it would have cost £12,900, however high inflation has dramatically increased the cost of daily expenses, Ms Guy says.
When accounting for the state pension, it means you would need to draw an annual income of £3,700 from your private or workplace pension savings. With this, you could afford to eat out just once a month and will not have enough income to keep a car or have holidays abroad.
Just one in ten women will be able to live a ‘moderate’ retirement with what they have saved, the survey finds.
Retirees need an annual income of £28,600 a year to live a ‘moderate lifestyle’, Ms Guy calculates using guidelines from the trade body the Pensions and Lifetime Savings Association.
This affords a two-week holiday in Europe every year and a car replacement every ten years.
Shortfall: More than a quarter of over-55s say they have no workplace or private pension savings at all
But those aspiring to this lifestyle will need a pension pot worth £290,800 on top of their annual state pension. Ms Guy says: ‘It’s appalling that only one in ten women are on track for a comfortable retirement.
‘Having taken a decade out of work myself due to caring responsibilities, I’m all too aware of some of the issues, and it is horrifying.
‘Many people are heading for a poor retirement; their pensions are failing them. Our data exposes a looming national pension emergency and the Government needs to act.’
However, the picture is rosier for the youngest generations, thanks to new rules that will give 18 to 22 year olds a pension boost.
On Monday, a private member’s bill to extend modern pensions to young workers cleared Parliament and was granted Royal Assent.
Most workers now save into defined-contribution pensions — a pot of cash that you and your employer pay into every year and to which you can gain access from the age of 55.
Employees are automatically enrolled into these pensions — so long as they are over 22.
But the new bill is expected to widen the net so that anyone over the age of 18 will be automatically enrolled so long as they meet minimum earnings criteria.
Former pensions minister Baroness Ros Altmann says the bill will ‘pave the way for half a million younger people and at least 2.5 million older workers to build bigger pensions’.
Rebecca O’Connor, of pension provider PensionBee, says this will help boost private pension provision for future generations.
‘The contributions made earlier in working life can be the most valuable because of compound growth and, while retirement can seem a long way away for those just starting their careers, this will help them get on the retirement ladder more easily and affordably.’
