Following Aviva’s Real Retirement Report, which showed the level of unsecured debt amongst older generations is rising whilst savings are falling, Scottish Widows has released figures which show too few of us are saving for retirement.
The report by Scottish Widows shows only 45% of us, are putting enough money aside each month to ensure a comfortable retirement. As the tough economic times continue to bite and the effects of the credit crunch linger, this is the lowest level of retirement savings seen by Scottish Widows since they started their research nine years ago.
Worryingly, the survey of 5,200 adults, also found one in five people were saving nothing for retirement and will therefore have to rely solely on the State Pension in retirement.
The report also highlighted the benefits of starting to save for retirement as soon as possible. According to Scottish Widows most people start to save for retirement in their thirties, but starting five years earlier could boost retirement incomes by around a fifth, whilst starting 10 years sooner could increase income in retirement by as much as 40%.
Experts though point out that it has become harder for younger generations to save meaningful amounts towards their retirement. One of the lingering effects of the credit crunch has been that first time buyers are getting older, with lenders requiring larger deposits than at the height of the housing boom. Consequently many would-be first time buyers are prioritising saving for a house deposit, over the longer term goal of retirement.
Why are people not saving for retirement?
In addition to saving for a house deposit the Scottish Widows report also found people were paying off debt and generally trying to cope with the rising cost of living, rather than paying into a pension.
Experts also believe that a growing mistrust of pensions, volatile stock markets and falling Annuity rates, have also contributed to a growing antipathy towards pensions and retirement saving.
Despite saving less than ever todays would-be retirees are expecting large incomes in retirement. The survey found that the average person would feel comfortable living on £25,200 at age 70, an increase of £700 on this time last year.
However, to provide such a figure, even without annual increases to combat inflation, a pension fund in excess of half a million pounds would be needed, well in excess of what the average Briton can expect based on their current level of retirement savings.
Responding to the survey, Iain Naismith of Scottish Widows, said: “We are being hit with a triple-whammy of, firstly, continued economic uncertainty making it difficult to save for the long-term; secondly the age of first-time buyers rising as we face troubles getting on the property ladder and thirdly an ageing population.”
Naismith continued: “These factors combined create a perfect storm for those heading towards retirement. Whilst we are becoming more aware of the need to save for retirement, we must do more to ensure that we have a comfortable old age.”
“Whilst starting saving as soon as possible is highly desirable, and increasing contributions as retirement approaches is almost essential, the biggest single difference can come from postponing retirement,” Mr Naismith said.
“The issue is whether a nation that aspires to stop working at 62 and have an annual income of £25,200 can accept this change.”