Why you might need to rethink your retirement savings
The average worker in the UK may face a significant shortfall in their annual retirement income. Research indicates that many plan to retire with an income of £48,868 a year, which includes the full State Pension of £11,542[1]. However, the reality paints a much bleaker picture.
A 22-year-old entering the workforce with a starting salary of £ 24,000 and contributing the minimum 8% to their pension – alongside a 2.5% annual pay rise and 5% investment growth after fees – could accumulate a pension pot of approximately £468,000 by age 67. When the State Pension is included, this amounts to an annual retirement income of around £36,600, which is a staggering £12,200 below their desired goal.
Are we saving enough for retirement?
This gap is widely recognised. According to the study, 60% of workers believe they are either not saving enough for retirement or are uncertain about their savings. Many have a target amount in mind for their retirement needs, but that often does not match the reality of their savings.
Clarifying how much income you will need in later life is essential. Recognising any potential shortfall early allows you to adjust your plans and enhance your financial future, preventing a retirement that does not meet your expectations.
The role of workplace pensions
Workplace pensions are a vital pillar of retirement planning. Nearly half (48%) of workers rank workplace pensions second only to salary when assessing company benefits. Under current auto-enrolment rules, a minimum of 8% of your earnings must be contributed to your pension, with your employer contributing at least 3%.
Some employers even offer to raise their contributions if employees increase their personal investments. However, 11% of workers eligible for this benefit did not take advantage of it, often citing affordability (44%) or a lack of understanding (24%).
Growing challenge for younger workers
Younger workers today are confronted with increasingly complex pension landscapes. The research indicates that the average individual holds 2.4 pension pots, while those aged 18 to 34 already possess an average of 2.9 pots. Consolidating and managing these pensions can become a significant challenge over time, further emphasising the need for ongoing professional financial planning advice.
Gender pension disparity
Another pressing concern is the gender pension gap. The research indicates that women often have significantly less pension wealth than men due to various factors, including lower average salaries, unpaid caregiving responsibilities and the effects of menopause. For example, men are twice as likely to have a personal pension as women (34% vs. 16%).
Addressing this imbalance necessitates awareness and action. Women, like all employees, can greatly benefit from financial incentives such as employer contributions and salary sacrifice schemes. Furthermore, even a slight increase in monthly contributions can lead to significant long-term gains.
Small actions, big impacts
If you’re concerned about your pension savings, there are steps you can take today. Small but consistent increases in your contributions, utilising employer perks and staying informed about your pension pots can all lead to a more comfortable retirement.
Source data:
[1] Figures are from the Royal London Workplace Pensions Research report. Research conducted between 31 July and 5 August 2024 on a sample size of 4,000 UK adults of working age with a pension and 500 UK adults who have retired who have a pension.
THIS ARTICLE DOES NOT CONSTITUTE TAX, LEGAL OR FINANCIAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE. THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN YOU INVESTED.