Pension savings have hit an 8 year-low as the number of people putting money aside for their retirement has fallen by an “alarming” five per cent in just a year, a new report has found.
An annual report into Britons' pension habits by Scottish Widows has found that only 46 per cent of workers are saving enough for their retirement.
This is down from over half of all people last year and a fall of 8 per cent from 2009 levels.
The fall is due to the decline in generous workplace final-salary pension schemes. Earlier this year the Association of Consulting Actuaries (ACA) said that a fifth of all private sector final-salary pension schemes had closed to existing members in the last year because companies can no longer afford to run them.
Scottish Widows also found that three in four people have stopped paying into a pension pot because they are prioritising other financial commitments, such as mortgages, above saving for their retirement.
One in five people are putting nothing aside at all for later life, Scottish Widows said.
Its (Euronext: ALITS.NX - news) poll of over 5,000 adults found that the fall in retirement savings has coincided with an increase in the amount of money that people think they need to live comfortably in retirement.
The average level of annual income people would feel comfortable living on at 70 years-old is now £24,500, a rise of £200 on last year.
Ian Naismith, head of pensions market development for Scottish Widows, said: “These are alarming findings as UK pension provision has hit an all-time low. People are saving less for old age yet their expectations remain high as the majority fail to recognise the harsh reality of retirement.”
He said that with an ageing population and ongoing economic difficulties, it has “never been clearer” that people need to start saving for their retirement.
According to the survey’s findings, the total pension pot for an average saver is around £150,000, which would only provide an annual pension of £5,700 when that person retires.
With the addition of the state pension this would generate a yearly income of approximately £13,000, which falls short of the £24,500 annual income that people are looking for.
Scottish Widows said that to meet current expectations, an average saver needs to save an additional £4,500 a year or £375 per month to plug “this expectation gap”.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said that Scottish Widows’ report highlights deteriorating levels of long-term saving in Britain.
He said that every pound that a 30-year-old saves into a pension today will deliver around £3 in retirement. However a delay of just five years in starting a pension would reduce that retirement income from £3 a week to £2 a week.
“We need to recapture a savings culture in this country. We should all be thinking in terms of ‘for every £10 I earn, I’ll give £1 to my long-term savings’,” said Mr McPhail.
Scottish Widows’ Mr Naismith said that auto-enrolment, under which companies will be obliged to launch workplace pensions for all their staff unless they opt out, is likely to reverse these trends when it launches in October.
However he urged the Government to mount a “compelling communications campaign” to make it clear to people of the need to save.
Scottish Widows’ UK Pensions Report polled 5,200 adults.
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