UK savers will begin retirement with a personal savings gap of £340,000 each, our two-year study of over 16,000 people has revealed.
As part of our ongoing ‘Tackling the Savings Gap’ campaign, we have closely monitored savers’ behaviour and how their actions compare to personal aspirations.
Savers say they need £23,000 annually to enjoy a comfortably retirement, which would require a total retirement fund of £460,000. However, current saving behaviour will generate just £6,000 as an annual income.
Over a 20-year average retirement, this leaves a total pension savings gap of £340,000, or £17,000 per year.
From next April, some pensioners will be able to claim the new State Pension of £155 per week. But, when combined with current savings trends, even those eligible for the full State Pension will still start retirement with a gap of almost £180,000.
We believe it’s time to look for new ways to fund retirement. Pensions have become so complicated that they are now seen as part of the problem, leading many people to delay saving for their retirement and making contributions that are too small.
The situation is compounded by inadequate or non-existent financial education and costly financial advice, meaning savers are often unaware of the best solutions for their needs.
Meanwhile ISAs continue to grow in popularity, especially among under-40s. Savers aged 18-24 are more than twice as likely to have an ISA compared to a pension. Of those ages 25-34, 23% have an ISA while 19% have a pension.
Managing Partner, David Harrison, said: “No one doubts the existence of the Savings Gap and we are now able to say how big it is. A gap of £340,000 is an enormous figure and with each day that passes, the problem gets worse.
“The new State Pension and automatically enrolling people into pensions will help but they are not the full solution to the Savings Gap. In fact, it may actually create a culture of complacency where savers think their retirement is taken care of, only to realise later that they have not put enough aside to meet their aspirations.
“The key is to engage people, particularly younger savers, with the idea of saving regularly. ISAs are much more popular so this is where the Government should focus its efforts and be really innovative.
“We now have a Help to Buy ISA. There should also be a Retirement ISA.”
Today, savers in their 30s are putting £23 per day towards their retirement. A 35-year-old starting to save for a pension now would need to save £52 per day to reach the £23,000 a year goal by retirement.
A 25-year-old, meanwhile, would need to put aside at least £37 worth of daily savings.