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Pension saving hits new low as 'unrealistic expectations' persist
Fewer than half of us are saving enough to fund our retirement, according to a report from Scottish Widows.
by Michelle McGagh on May 21, 2012 at 11:37
Of those earning £30,000 a year or more, 54% are saving enough for retirement, compared with 40% of people earning £10,000 to £30,000. Where people are earning £50,000 or more a year, 55% are saving enough for retirement.
The report said: ‘Very high earners have generally increased the amounts they save. However, among lower earners there was a fall in average savings, with the ratio [the percentage of income being saved] falling from 8.8% to 8%.
‘Again it looks as though the squeeze on household incomes is having a particular impact on this group.’
Expectations versus reality
To see if people’s retirement expectations are realistic, the report splits people into four groups:
- Adequate savers: putting 12% of income aside, or expecting main pension income to come from a DB pension;
- Somewhat under-saving: putting aside 6% to 12%;
- Seriously under-saving: putting aside up to 6%;
- Non-savers: saving nothing for retirement.
Savings include employer contributions and non-pension savings intended for retirement but does not include short-term savings or property investment.
Although the personal income of this group is not necessarily high, with 52% earning under £30,000 a year, the outlook for them is positive. Typically aged 45 or over, they have usually stayed in employment with one company and will benefit from a workplace pension as well as their own provision.
‘Adequate savers understand the value of saving regularly and for the longer term, and they are putting aside significant amounts for retirement on top of their pension savings – £231 a month on average,’ the report said.
This group would be happy with a retirement income of £15,000 to £30,000 a year at age 70 and although most would like to retire at 62, they expect to have to work until 64.
Just 54% of this group believe they are preparing adequately or more than adequately for retirement but the report states 'their expectations on retirement age and income appear realistic, and they can look forward to a relatively comfortable standard of living in retirement’.
People in this group are typically under 45 and earning less than £30,000 a year, but are juggling a number of financial burdens such as a mortgage and children on top of trying to save for a pension.
Despite just 40% saving with an employer they have relatively high aspirations for their retirement. A total of 29% are looking for a household income of over £30,000 at age 70 and only a third expect to work past age 65.
The report said the outlook for this group ‘could also be considered relatively positive’.
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