THE 13TH annual Scottish Widows Retirement Report reveals that, despite the success of auto-enrolment – 80 per cent of 22-29 year olds are paying something into a pension – 70 per cent of them are not putting away enough. This puts at risk their ability to achieve their desired income of just over £23,000 a year for a comfortable retirement.
The report found that average contributions are £184 a month (including employer contributions), meaning they can expect an annual pension of just £15,200 including the current State Pension.
A 30-year-old contributing the current minimum of 1 per cent to their workplace pension (matched by their employer) will achieve an income in retirement of £9,734. And even when the minimum contributions rise to 8 per cent (employee and employer combined) in 2019, they will only achieve an annual retirement income of £14,047. This is a shortfall of almost £9,000 on expectations.
There is also evidence that more people will begin to opt out of pension schemes as contributions increase through auto-escalation from April 2018. When 22-29 year olds were asked if the planned increases would affect how they save, less than half (48 per cent) committed to staying enrolled.
The later you start the harder it gets. If someone starts saving into a pension at 25 years of age, they would need to put aside £293 each month to reach a £23,000 annual income. Not starting to save until 35, monthly savings would need to jump to £443 and at 45 this would be £724. For someone who left retirement saving to their 50s, they would need to put away £1,445 a month to enjoy a £23,000 annual pension.
Catherine Stewart, Retirement Expert at Scottish Widows, said: “There is no doubt auto enrolment has been a success in kick-starting the savings habit for millions – but it is not a silver bullet. Auto-enrolment may well be lulling people into a false sense of security that they are putting away enough for a comfortable retirement.
“For many, that is simply not the case; particularly given retirement is looking more expensive than ever. With one in every 12 private rental sector tenants now a pensioner, ‘Generation Rent’ is headed for a more expensive retirement than previous generations.”