With the State Pension Age increasing, more of us than ever will be reliant on our private pensions. But new research has revealed that less than 40% of us are saving enough and on track for a comfortable retirement.
Here, I take a look at what the pension age increase means for your retirement, why you may not be saving enough and what you can do to boost your pension savings.
State Pension Age increase
The State Pension Age is currently 66, but it will soon increase to 67 for those born after 1960 and 68 for those born after April 1977.
But a recent government think tank report has suggested that the State Pension Age increase should be accelerated. It warns that the State Pension Age may have a rise to 70 by 2040. This would leave many Brits retiring three years later than expected and working into their old age.
Private pensions need to bridge the gap in Pension Age
The increasing State Pension Age makes our private pensions more important than ever. Many of us won’t be able to work until we’re 70 and will rely on our private pensions to bridge the gap.
However, it seems that lots of us simply aren’t saving enough.
Less than 40% saving enough
The newly launched Hargreaves Lansdown Savings and Resilience Barometer shows that less than 40% (39.7%) of people are on track for a comfortable retirement. This is based on the level of income highlighted by the Pensions and Lifetime Savings Association (PLSA) retirement income targets.
The PLSA standards say that a single person would need a retirement income of £20,800 per year to achieve a moderate standard of living. A couple would need £30,600. This includes the State Pension which can be worth up to £9,340 per year per person.
Income divide
The top 20% of workers are more likely to be on track for a comfortable retirement. However even three out of ten of the very highest earners are still not on track to hit this target – a surprise given the high level of income they receive.
In the next income group, only 47% are saving enough. This shows a real lack of engagement with pension planning.
Generational divide
There is also a generational divide, with younger workers saving less than older workers.
It seems 45.2% of Generation X are on track for a comfortable retirement, and well over a third (36.1%) of millennials are also on track. Meanwhile, only 17.7% of Generation Z can say the same.
Older Generation Xers are more likely to have benefited from final salary pensions. Others may have also started to take their retirements more seriously as they get older and so are putting more money into their pensions. Younger generations look far more exposed, with Generation Z in particular lagging when it comes to saving for retirement.
No luxuries
According to Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, “Most people would like to think they will be able to afford a few luxuries here and there during their retirement years.” But the data shows a different story. She explains, “Less than 40% of people are on course to enjoy a moderate lifestyle in retirement. Without action, many people face only the most basic standard of living in their later years.”
Start contributing early to avoid the pension age gap
Helen Morrissey encourages workers to start contributing early to their pension pots. “People need to engage now if they are to get good retirement incomes.” She explains, “Retirement can seem like a long way away and it’s tempting to shelve the longer-term planning when there are pressing demands on our finances. However, we know the earlier you start contributing to your pension the better.”
She added that “Saving into your pension is like paying your future self. It may seem onerous, but by engaging now, you are saving yourself a lot of hassle. You won’t have to find much higher sums in the future to try and make up any shortfall and your future self will surely thank you.”
How to boost your pension
If you think you might not be saving enough, then consider our tips to boost your pension wealth.
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About the author
Alice is a Suffolk-based personal finance writer specialising in pensions, tax, investment and small businesses. She is a qualified Chartered Accountant and has previously worked for KPMG London and Tesco Plc.
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