Wednesday 19 May 2010

Britons face massive pension gap

Britons are facing a £1.2 trillion pensions gap between what they think their retirement income will be and how much they will actually receive, research showed.

The average person needs to save £50,000 more during their working life than they currently plan to in order to obtain the pension they want, according to consultancy firm Hewitt Associates.

The group found that the average worker, who was aged 43 and earned £25,000, hoped to retire at 63 on a pension worth £15,300 a year.

But they are saving only 5.9% of their salary into a defined contribution pension each year in order to achieve this, meaning their pension is actually likely to be worth only around £5,900 annually in real terms.

Even once the state pension is factored in, people would still need to continue working until they were 70 or increase their pension contributions to more than 19% of their pay to receive their desired retirement income.

The group said the gap between the pension that people hoped to receive it and its projected size had soared by 50% during the past six years, with Britons facing a pensions shortfall of £800 billion when the same research was carried out in 2004.

Lynda Whitney, pension consultant at Hewitt Associates, said: "Saving for retirement is a major issue and one of the largest socio-economic problems to be faced by the new UK Government.

"This saving gap cannot be met through higher state benefits funded by taxing future generations as the proportion of pensioners is increasing relative to the working population.

"People need to wake up to the fact they will have to save more, work longer and/or live on a lower pension in retirement."

But when told about the shortfall they faced only 10% of people were prepared to retire on less than they had hoped, while just 27% said they would increase their contributions.

Press Association

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