Millions of Savers Face Retirement Financial Shock with Insufficient Pension Savings
Alarming research reveals that nearly half of individuals over the age of 55 have less than £50,000 saved in their pension, leaving millions of savers vulnerable to financial instability in retirement. A report by stockbroker Interactive Investor, seen by Money Mail, highlights the extent to which workers are undersaving for their later years. To afford the bare necessities and maintain a modest standard of living in retirement, pensioners need a retirement nest egg of £59,900, in addition to a full new state pension.
The calculations, undertaken by Alice Guy of Interactive Investor, assume that individuals secure their annual income through the purchase of an annuity. This financial instrument exchanges a lump sum for a guaranteed yearly income until death. However, despite the advantages of guaranteed income annuities, fewer people have chosen to invest in them in recent years. As a result, two in five people approaching or in retirement have not saved enough to secure a comfortable lifestyle.
In addition, a survey by consultancy Barnett Waddingham reveals that over a quarter of individuals aged 55 and above have no workplace or private pension savings at all. These individuals will solely rely on the state pension, which currently provides just £203.85 per week. The lack of sufficient retirement savings has led experts, including Paul Leandro of Barnett Waddingham, to warn of an impending “pensions timebomb” in the UK.
In order to achieve a “minimum” standard of living in retirement, individuals need to draw an annual income of £14,300 before tax. Last year, industry guidelines estimated that this figure would have been £12,900. However, high inflation rates have significantly increased the cost of daily expenses. When accounting for the state pension, individuals would need an annual income of £3,700 from their private or workplace pension savings to afford eating out once a month, while still lacking the means to own a car or travel abroad for holidays.
A survey conducted by Barnett Waddingham reveals that only one in ten women will have enough savings to live a “moderate” retirement. According to guidelines from the Pensions and Lifetime Savings Association, retirees need an annual income of £28,600 to achieve a “moderate lifestyle.” This includes a biennial holiday in Europe and a car replacement every ten years. However, in order to achieve this lifestyle, individuals would require a pension pot worth £290,800 on top of their annual state pension.
While the prospect of a comfortable retirement may seem bleak for many, younger generations may have a more optimistic future due to new legislation. A private member’s bill that recently cleared Parliament and received Royal Assent will extend modern pensions to workers as young as 18. Previously, employees were automatically enrolled in pension schemes only if they were over 22. The new bill is expected to encompass individuals over the age of 18 who meet the minimum earnings criteria. Former pensions minister Baroness Ros Altmann predicts that this bill will allow half a million young workers and at least 2.5 million older workers to build larger pension funds.
Rebecca O’Connor of pension provider PensionBee believes that this legislation will greatly benefit future generations by enabling earlier and more affordable retirement savings. She emphasizes that the contributions made earlier in one’s career can be the most valuable due to compound growth, and this legislation will help individuals embark on their retirement journey with greater ease.
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