The seventh annual Scottish Widows UK Pensions Report 2011 has revealed worrying and widespread inertia when it comes to preparing adequately for retirement.
The Scottish Widows Pensions Index, looking at those between 30 years old and state pension age earning more than £10,000 per year, reveals that while 80% of workers are saving for retirement, only 51% are putting away what is considered to be an adequate amount to live comfortably, and this figure drops to 25% when those with a final salary pension are excluded.
The report shows that the percentage of monthly income being saved for retirement by UK workers not relying on a final salary pension stands at just over 9%, some way short of the 12% Scottish Widows have calculated is needed for a comfortable retirement.
Perceptions and Aspirations
In the wake of the economic downturn, people have certainly lowered their expectations for income in retirement. On average, people would like to have £24,300 a year to be comfortable, compared with a pre-recession figure of £27,900.
However, the average age people would like to retire remains largely unchanged at 61 years and 8 months. Indeed, only one in five said they would be happy to still be in employment at 70 years of age. Unfortunately, this seems set to become harsh reality for a sizeable number if the rate of saving does not change.
Ian Naismith, Head of Pensions Market Development for Scottish Widows, said: “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 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.”
A ninth of non-retired respondents indicated they are likely to opt out of NEST if they are automatically enrolled in it, and although the amount of people who said they are prepared to contribute has increased to £37.50 a month from £33.90 in 2010, this is still well below what will be required after the initial phasing-in period.
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 this as the foundation for their retirement savings rather than the full solution.”