Most people think about retirement as their ‘Golden Years’, a reward for decades of hard work and sensible saving. They dream of spending time with grandchildren, taking long holidays and relaxing in comfort. Unfortunately, our latest research shatters this illusion for the average person in Britain.
For many, retirement will be a case of survival, not comfort, with a pension providing just £15.95 a day to live on. It means dependency on an already pressurised state pension, for those who can afford to retire at all.
Our ‘Tackling the Savings Gap’ project, launched in August 2013, has now asked over 6,000 Britons about their personal finances and retirement plans. A picture has emerged of a looming crisis, with people saving barely a quarter of what they need. It’s clear that the effects of the financial crisis in 2008, low interest rates and a lack of financial education have all taken their toll on Britons’ ability to plan for their retirement years.
How much do Britons think they need?
We asked savers how much they would need to live comfortably in retirement. 32% told us they would need between £16,000 and £25,000 per year.
To get an income of that size, they will need a fund of around £400,000. That would allow for an income of £20,000 for 20 years, say from age 65 to 85. Over the average working life of 45 years (age 20 to 65), that means saving £8,888 per year or £741 per month.
How much are Britons actually saving?
Our research shows a clear difference between Britons’ retirement expectations and the amount they are saving. The data from our survey shows that, on average, Britons are:
- only saving £2,579.64 each year for their pension;
- meaning they will have a fund of £116,083 at retirement age;
- giving them an annual income of £5,804.19, or £15.95 per day.
To put that in further context, only 4% of those we asked said they could survive on between £6,000 and £10,000 per year. That means, even the most frugal people think they will need almost £200 more each year than the average person will have.
Is there a solution?
Commenting on the findings of our research, Managing Partner David Harrison, said:
“The aim of this project is to determine the true size of the savings gap in modern Britain and we now know the answer. It is not a gap, but a chasm. Without an enormous change in behaviour, it will be simply impossible for millions of people to retire until well into old-age. Indeed, many millions may never be able to retire.
“Most people still prefer to save in cash and that simply means that inflation will erode the value of their savings further. No one knows if there will even be a state pension to plug the gap in years to come to and I am afraid the picture looks very bleak indeed.
There are many causes of the Savings Gap and the solutions are varied too. We know that investors remain cautious when it comes to saving and that many still choose cash savings that don’t beat the rate of inflation. The biggest problem remains attitudes, with many people simply hooked on impulse spending over impulse saving.
To help solve the latter problem, we developed impulseSave® to make saving easier. It’s a first-of-its-kind technology that allows savers to add as little as £1 to their investments at a time. The power to make micropayments helps savers to close the gap between their financial goal and the amount they have invested. With impulseSave® available 24/7 online and via mobile apps, savers can top-up their investments on-the-go, wherever and whenever they want.
You can read the full Savings Gap press release here.