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.