The average worker expects to retire with an income of £48,868 but is likely to fall short by around £12,000, according to Royal London.
According to a survey of 4,000 people who are not yet retired, pension savers expect to retire on £48,868 per year, which includes the full state pension of £11,542. But according to predictions, a 22-year-old who makes £24,000 a year and puts in the required 8 per cent of their pension, along with a 2.5 per cent annual pay increase and a 5 per cent investment growth, would retire at age 67 with a pension pot of £468,000, which would provide an annual income of roughly £36,600, which is significantly less than what was anticipated.
Many employees are aware of the deficit, and 60 per cent are not sure if they are saving enough. When considering job benefits, 48 per cent of respondents place workplace pensions second only to pay, indicating that they continue to be a top priority.
Additionally, 11 per cent of eligible individuals do not take advantage of contributing higher, claiming a lack of understanding (24 per cent), and affordability (44 per cent).
Royal London pension and tax expert Clare Moffat says: “Many people have an idea of how much they would like in retirement but that doesn’t always match the amount that they have managed to save. This means that they might not be able to retire in the style they wish.
“It’s important to understand how much you need in retirement and the PLSA’s Retirement Living Standards can help with this. Discovering any potential shortfall sooner can give you time to take action to improve your lifestyle in retirement.
“Someone hoping for an annual retirement income of £48,868 would need to build a pot of approximately £696,000, in addition to the State Pension.”
Moffat says: “The days of people being wed to one or two employers over their working life are long gone. For younger people today, it’s not unrealistic to think they might build a dozen pots over their lifetime.
“The best preparation for your long-term future is to start saving into a pension as early as you can. This means that small amounts of money grow into larger sums over time.”
Moffat says: “There are many reasons for the gender pension gap, including lower salaries among women, higher levels of unpaid caring responsibilities and the effect of the menopause. If we consider the example above, if the person reduced their hours to 50 per cent at age 35 when they had a child and then increased their hours at age 51, instead of a retirement income of approximately £36,600 including the State Pension, it would be around £32,0003. That’s around £17,000 less than the average pension saver would like.
“However, taking advantage of financial incentives such as employer contributions and salary sacrifice can help. Even small increases in your monthly contributions can have a dramatic increase in the pot you retire with.”
