A report by Scottish Widows has revealed a massive gap between what individuals expect to retire on, and what they will actually get in their old age. This will have a big impact on the type of retirement that many will have, since so many have failed to understand the level of funds required to have a comfortable and enjoyable retirement.
Retirement savings have dropped to a record low, and figures have shown that pension saving fell by 5% last year. This is a situation which has worried the Government, who have made a serious effort to get more people saving by creating their auto-enrolment programme.
Lack of savings effort
A study has shown that middle-income workers who are signed to company pension schemes will need to set aside at least £600 each and every month just so they can have the most basic of retirement incomes.
This was said in the eighth annual report published by Scottish Widows regarding UK pensions, in which they found that less than 50% of the population is making the effort to save money for their old age.
In fact, the figures have shown that 22% of people have not saved anything at all for their golden years, which is bad news as it will mean they will have to depend on the state pension to get by. Women are in the worst position, since only 42% have set a decent amount aside; men on the other hand fair a little better, with 49% saving an adequate amount for their retirement.
Pension companies and financial advisors have estimated the amount of money that must be saved each month to receive a retirement income of £20,000 each year. Assuming that the state pension will pay a flat-rate of £140 per week, which gives £7,280 a year, a further £12,720 would need to be raised by using a private pension from Virgin Money and other providers.
Save all income
Raising this amount of money can be difficult in this economic climate, since the stock markets are volatile, life expectancy is increasing, and annuity rates have dropped. All of these factors are making it almost impossible to realise a decent income retirement unless people begin saving as early and often as possible.
The plight facing the older generation is clearly described by the fact that anyone over the age of 50 would have to save almost everything they earn, just so they can amass a pension pot worth £12,720.
“Fifty-year-olds who have left it late cannot delay any longer. It’s going to be extraordinarily difficult to save a large pot between now and retirement,” said Vincent Smith Hughes of Prudential.
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