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DC pension savers face 80% retirement income shortfall

by Alex Steger on Nov 30, 2012 at 08:32

DC pension savers face 80% retirement income shortfall

Defined contribution (DC) pension savers face a shortfall of around 80%, or an average of £20,200, between their expected and actual retirement income, a study has shown.

Research by the Institute of Fiscal Studies and the National Association of Pension Funds (NAPF) showed the majority of consumers were underprepared for retirement, underestimating their longevity and overoptimistic about the size of their DC pension pots.

The study showed those approaching retirement (aged 50 to 64) with a DC pension were too optimistic about their retirement income. On average their DC pension pot would have to grow by 77%, or £20,200, to reach their expected income.

Of those aged 50 to 64, one in four would need to save more than £60,000 before retirement to attain the income they expect. And six out of ten (59%) have never thought about how many years of retirement they might need to finance.

A third (32%) of those aged 52 to 64 could not offer even a rough estimate of what their private pension income in retirement might be.

Women in their 50s were underestimating their life expectancy by around four years, predicting 84 instead of 88, while men were doing so by around two years (stating 83 instead of 85), when compared to national projections of life expectancy.

NAPF chief executive Joanne Segars (pictured) said: ‘Millions of people are within a decade of their state pension but have still not thought about how long their retirement might last. It’s worrying that so many over-50s are sleepwalking into their old age and are expecting to be better off than they will be. It does not help that the annuity market has become so tough.

‘The average saver with a defined contribution pension is being over-optimistic. They need to see their pension pot grow by almost 80% to meet their expectations. That is a huge ask if they are only a few years away from their retirement party.

Click here to crack auto-enrolment advice.

5 comments so far. Why not have your say?

Keith Cobby

Nov 30, 2012 at 09:31

I am confused by this article. There seems to be some confusion between the size of a DC pension fund and the size of pension it will provide.

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Adam Grant

Nov 30, 2012 at 10:11


Read some of the comments at the beginning of the BBC copy of this story. It gives a real insight into what many "average Joes" think of IFA's and the like,...

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Julian Stevens

Nov 30, 2012 at 10:15

A good start to address the problem would be for the government to do something about the annuity rates trap by facilitating a better mechanism for the conversion of capital to income and removing the punitive death tax on unspent funds post-vesting. But, instead, it remains obstinately deaf to pleas from all quarters whilst all Steve Webb is allowed to do is bang on about cheap auto-enrolment workplace schemes.

The reason why people aren't contributing enough, if anything at all, to their pension plans is because they've lost all trust and faith in the system and/or they simply can't afford any more. We out here at the coalface hear it all the time. Except for higher rate tax payers and/or those whose employers are making a decent contribution for them, all the incentives for so doing have either been taken away or, again referring to the ART, have withered on the vine. And the government is doing NOTHING WHATSOEVER about it. Its latest proposals to cut the anual input allowance even further, whilst not directly affecting most pension savers, is just further evidence of its strategy to destroy all public confidence in locking away money into a pension plan.

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Joe King

Nov 30, 2012 at 12:06

Just glad i've got my £50k a year final salary pension, phew.

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Richard Hardy

Nov 30, 2012 at 12:30

Pensions have gone the way of endowments.

When they were taken out they weren't a bad way of saving.

Numerous 'poorly thought through' Government polices later they are knackered.

The Government needs to make pension saving more attracted and more productive and rewarding for those who take part.

The analogy? The British motor industry. Left to fester with no development within a decade was gone.

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