Scottish Widows seventh annual Pensions Report shows retirement provision remains consistently low
Nearly half (49 per cent) who should be saving for retirement are failing to do so adequately. This has never been below 46 per cent or over 52 per cent over the last five years
A fifth of people are failing to make any provision at all for their retirement
Three quarters understand the need to take personal responsibility for their future
People want, on average, £24,300 a year in retirement to live comfortably
Saving an average of £58 per month extra would help provide many individuals with adequate funds for older age. Anything on top of that would help them get closer to the comfortable income they aspire to.
The seventh annual Scottish Widows UK Pensions Report 2011 reveals widespread and ingrained inertia across the country with nearly half (49 percent) of those people who could and should* be saving preparing inadequately for retirement. Levels of saving remain broadly consistent over five years, pre and post the financial crunch, with those preparing inadequately never falling below 46 percent or rising above 52 percent.
The Scottish Widows Pensions Index - looking at those between 30 years-old and state pension age who earn more than £10,000 per year - shows that only 51 per cent of the current generation of potential savers are making sufficient provisions for their retirement. This drops to around 25 percent when those with a final salary pension are excluded. A fifth (20 percent) of people are failing to save anything at all.
This comes despite the fact three quarters (73 percent) of people recognise the need to take personal responsibility for their retirement planning, demonstrating that awareness in the importance of saving is not translating into action.
The Scottish Widows Average Savings Ratio - which tracks the percentage of income being saved for retirement by UK workers not expecting to get their main retirement income from a final salary pension - remains at just over 9 per cent. This is a 3 per cent shortfall from the 12 per cent Scottish Widows believe people should be saving to achieve a comfortable retirement.
Ian Naismith, Head of Pensions Market Development for Scottish Widows, said: "This year's report clearly illustrates the stark difficulty we face in helping people to recognise the urgent need to take personal responsibility for their future. We need a step-change to overcome this ingrained inertia and help people prepare for their retirement."
Retirement Perceptions: Myth and Reality
The average age people would like to retire remains unchanged from 2010, at 61 years and 8 months. The maximum age respondents would be prepared to work until also remain broadly consistent with 2010 at 66 and 6 months. Only one-in-five said that would be happy to still be in employment at 70 years old.
On average people would like to have an annual income of £24,300 to be comfortable at 70 years-old, a sizeable drop from the amount we saw before the recession in 2009 (£27,900), showing signs of more modest expectations following the economic downfall. However, this will still be unobtainable if the number of people failing to save adequately remains at current rates.
Surprisingly, respondents claim that they are able to put aside an additional £97.10 per month on average for the long-term in 2011, this is an increase following a drop in 2010. However, people are failing to do so.
Ian Naismith continues: "Put simply, people need to save an extra £58 per month** on average to prepare adequately for retirement and make up the shortfall we are seeing currently. That is roughly the cost of a cup of coffee every day. Even though for many this is realistic, and is in under the average £97.10 per month people say they can afford, we appreciate the difficulty in setting aside extra money. It's about breaking through that inertia. And for some the amount that needs to be saved will be higher but it's about taking small steps, getting on to the savings ladder and, more importantly, staying on it. Much higher saving levels are needed to get towards the average £24,300 a year people aspire to. The message is that everyone should be putting aside as much as they can afford for their retirement."
Introduction of NEST
A ninth (11 percent) of non-retired respondents indicated they are likely to opt out of NEST if they are automatically enrolled into it. This is unchanged from last year. The amount they are prepared to contribute has increased and now stands at £37.50 per month, in comparison to £33.90 in 2010. However, this is well below what will be required after the initial phasing-in period. The mean amount was higher for men than women.
Ian Naismith continues: "The successful implementation of automatic enrolment, combined with state pension reform, could help galvanise consumers into action to think more about how much they are saving and when they start to make provisions. However, these measures need to be accompanied by a clear message that most people need to see these as the foundation for their retirement savings rather than the full solution."
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