Savings adequacy amongst 40 to 49-year-olds has fallen over the last year, with just 53 per cent of that age group on target for a secure retirement today, compared to 57 per cent a year ago, according to research from Scottish Widows.
This year’s Scottish Widows Pensions Index shows overall retirement savings adequacy stabilising, with increased saving resulting from auto-enrolment offsetting the reduction in reliance on defined benefit pensions.
But Widows has identified a ‘troubling’ trend amongst those in their 40s, with the number of non-savers in this age bracket up to 19 per cent this year, compared to 16 per cent in 2015. The 53 per cent retirement savings adequacy ratio of those in their 40s is now the same as that for the 30 to 39 age group.
The proportion of people not saving at all has dropped slightly to 18 per cent this year from 19 per cent in 2015. The mean age at which people think they can comfortably afford to begin saving for retirement has risen in the past year, to 29.3 years from 28.9 years. But the age at which most would like to retire at has fallen to 62.5 years from 62.7 years last year. The average income people believe they will need for a comfortable retirement has also increased to £23,990, up from £23,254 in 2015.
In spite of steady savings levels across the board, Widows says the research points to the positive role that auto-enrolment is likely to continue to play in the coming years – with current figures reflecting levels of savings made by many at the very start of their saving journey. When excluding those who have a defined benefit pension and looking only at those covered by auto-enrolment, the proportion of people saving adequately has increased in the past 12 months to 43 per cent from 39 per cent. The impact of auto-enrolment is also clear when looking at non-savers, with 24 per cent of women, 24 per cent of the self-employed and 25 per cent of those working for small businesses all not saving.
Brexit has caused a dip in confidence in retirement saving. The survey found 31 per cent of people pre-Brexit said they felt optimistic about their retirement, but this fell to just 21 per cent following the vote. This trend was particularly prevalent among young people, with of 27 per cent 18 to 24-year-olds feeling pessimistic about their retirement pre-Brexit rising to 43 per cent post-Brexit.
But 53 per cent saying Brexit will not affect the amount they will save, and only 11 per cent saying they will be putting away less money as a result. The research found 26 per cent of 18 to 24 year olds saying they may now put away more money.
Scottish Widows retirement expert Robert Cochran says: “With three solid years of improvement behind us, it is disappointing to see that savings levels are starting to plateau. Particularly worrying is the fact that savings levels among those in their 40s drop off at a time in life when retirement may be within 20 years.
“The light at the end of the tunnel in this picture is the long-term impact of auto-enrolment, which is clear to see from our twelve years of research. Auto-enrolment has already brought six million new workplace savers into pensions and with the minimum contributions for employers and employees set to rise in coming years, we expect average levels of savings continue will rise. Critical to maintaining this trend will be encouraging people to save more than the minimum contribution, as well as providing the right support to those who are not covered by auto-enrolment. We are calling for better support to help those employed in small businesses and the self-employed realise the benefits that auto-enrolment has already brought to so many.”
Aegon UK pensions director Steven Cameron says: “Irrespective of age, people face barriers to saving. Our own research has shown that 93 per cent of 45 to 54 year olds have encountered barriers, with the cost of living, mortgage loan repayments and family expenses all putting the brakes on people’s pension saving. But deferring pension saving is a risky strategy.
“We know that 12 per cent of the UK population are on track for the retirement they want, which leaves a significant proportion of the population falling behind where they need to be. It is vital that people not only consider this ‘benchmark’ of saving 12 per cent of income for retirement, but that they do so from an early age. A 25 year old saving 12 per cent of their salary will have a much healthier pension pot than a 40 year old doing the same.
“Set against a backdrop of uncertainty, with the State Pension age rising and the triple lock only guaranteed until 2020, it is now more important than ever before that people take pension savings into their own hands. The UK needs to get saving as early as possible and take advantage of initiatives like workplace auto-enrolment that will help boost savings and ultimately result in people being able to achieve a lifetime of financial security.”