Britons are expecting ‘twice as much as they will receive’ from their pensions as savings plummet to their lowest in eight years with over fifty percent of the UK failing to save enough, according to a recent report.
Pension savings at ‘all time low’
The Scottish Widows’ eighth annual retirement Pension Report found that retirement savings in the UK are at a record low with just 46pc of Britons saving sufficiently to fund their retirement. This marks an eight percent fall since 2009 and a 5pc decrease since the previous year. The reality of the figures dropping to under half of Britons has sparked concerns that many workers are adopting a ‘rose-tinted’ view of their retirement years.
In some regions of the UK, lacking provisions were far below the half mark. Just 32pc of workers in the North East are saving enough for their retirement. The South West region was only slightly higher with 38pc of their workers making sufficient financial preparations - the report suggested that this could be due to the high numbers of self-employed workers in this region. Northern areas marked the only locations where over 50pc of workers had saved sufficiently with 56pc of respondents in Scotland and 54pc of those in Yorkshire and Humbert.
One in five have saved nothing at all
The poll of over 5200 people showed that 22pc of respondents aged between 30 and state pension age earning over £10,000 had failed to make any provisions whatsoever. Another figure which has increased on a yearly basis since the report began.
Head of Market Development for Scottish Widows, Ian Naismith said:
"People failing to make any kind of provision for their later years are in a particularly precarious position. Some may think that they will be able to fall back on the state pension, property or a partner's pension and whilst these options may provide some level of support, saving nothing for retirement could be a fast track to financial problems and serve poverty in later life."
‘Rose-tinted’ retirement expectations
Despite the financial provisions being made rapidly declining, workers’ pension expectations seem to be increasing. £24,500 is the annual income which the majority of respondents would feel comfortable living on at 70 years old, a £200 increase from 2011.
The average saver will actually receive just £13,000 per year based on the combination of annuities from the average savings pot of £150,000 and their state pension offering. This would give them just over half of the annual income which they had hoped for.
In order to obtain the expected £24,500 yearly income, the average saver would need to generate an extra £300,000 into their pensions pot meaning they would need to save £375 more per month or £4,200 a year. Iain Naismith continued:
"These are alarming findings as UK pension provision has hit an all time low. People are saving less for old age yet their expectations remain high as the majority fail to recognise the harsh reality of retirement. With an aging population, and ongoing economic difficulties, it has never been clearer that we need to do more to shift people quickly from their unrealistic ‘rose-tinted' expectations of retirement. They must either increase their savings substantially or change their expectations of when they might retire and how much income they will receive.”
Pension saving lowest priority for 73pc
The report also addressed the reasons behind lacking pension savings. It showed that over 70pc of respondents believed saving for their pension was less important than other financial commitments. 40pc said ‘general living expenses’ were their priority, 30pc said ‘paying off debts’ were more important and 16pc favoured ‘holidays and travelling’ to saving for their retirement.
Ian Naismith said that while ‘bills and mortgages’ are understandably prioritised, those putting holidays before their retirement savings should ‘urgently rethink their priorities to have any chance of enjoying a comfortable retirement’.
The government’s ‘proposals’ to change the pension system to one where workers are automatically entered into company pensions could provide a ‘once in a lifetime opportunity’ to change the current pension issues in the UK as long as the system is clearly explained to consumers, according the report.
Tom McPhail, Head of Pensions research at Hargreaves Lansdown said:
"Hopefully auto-enrolment will help to kick-start the solution, however it needs to happen soon. The government should be working more closely with the industry and with regulators to look at what policy interventions are needed to drive up savings rates."