Almost half of older savers have less than £50,000 in their pension
Almost half of elderly savers have a pension of less than £50,000
- Pensioners need at least £59,900 in their pots to cover essentials
- More than a quarter of people over 55 say they do not have a job or a private pension
- The new bill means that all 18-year-olds are automatically enrolled in the occupational pension
Millions of savers face a financial shock when they retire, with two in five over-55s having less than £50,000 in their pension, alarming research reveals.
More than seven million people in England and Wales are at risk of living in poverty when they retire because their pension pot falls far short of a comfortable lifestyle.
A report by stockbroker Interactive Investor seen by Money Mail today reveals the extent to which workers are saving too little for later life.
According to calculations by Interactive Investor’s Alice Guy, pensioners will need £59,900 in their retirement nest egg on top of the full new state pension to afford essentials and the very lowest pension in retirement.
That is, if they secure their annual income by buying it as an annuity.
Minimum requirement: Pensioners need £59,900 in their pension nest egg on top of their state pension to cover essentials and the very lowest pension
In these contracts, a cash sum is exchanged for a guaranteed annual income until death.
However, fewer people have chosen guaranteed income annuities in recent years. Nevertheless, two out of five people who are nearing or retiring have not saved enough for this purpose.
More than a quarter of over-55s say they have no job or private pension savings at all, according to a survey by consulting company Barnett Waddingham.
This means they are completely dependent on the State Pension, which pays just £203.85 a week.
Paul Leandro Barnett of Waddingham warns that Britain is walking into a “pension time bomb”. To meet the ‘minimum threshold’ for pension, you need to have an income of £14,300 a year before tax.
Pensions guidelines estimate that last year it would have cost £12,900, but high inflation has increased the cost of day-to-day expenses dramatically, Guy says.
When you calculate the State Pension, you should have an annual income of £3,700 from your private or occupational pension savings. With this, you would only be able to afford to eat out once a month and not have enough income to keep a car or go on holiday abroad.
According to the study, only one in ten women can live on a “moderate” pension with savings.
Pensioners need an annual income of £28,600 to live a “moderate lifestyle”, Ms Guy calculates based on guidelines from the Pensions and Lifetime Savings Association trade body.
This allows for a two-week vacation in Europe every year and a car change every ten years.
Shortage: More than a quarter of over-55s say they have no job or private pension savings
But those who aspire to this lifestyle need a pension pot worth £290,800 on top of their annual state pension. Ms Guy says: “It is appalling that only one in ten women are on their way to a comfortable retirement.
“I’ve been out of work myself for a decade due to caring responsibilities, so I’m all too aware of some of the issues and it’s horrendous.
“Many people are heading for a poor pension; their pensions are failing them. Our data reveals a looming public pension emergency and the government must act.
For the younger generations, however, the picture is rosier thanks to the new rules, which bring 18- to 22-year-olds a pension supplement.
On Monday, a private member’s bill to extend modern pensions to young workers was passed to Parliament and received Royal Assent.
Most workers are now saving into defined contribution pensions – cash that you and your employer pay into each year, which you can use when you’re 55.
Employees are automatically enrolled in these pensions – as long as they are over 22 years old.
But the new law is expected to widen the net so that anyone over 18 is automatically enrolled as long as they meet the minimum earnings.
Former pensions minister Baroness Ros Altmann says the bill will “pave the way for half a million young people and at least 2.5 million aging workers to build bigger pensions”.
Rebecca O’Connor, of pensions company PensionBee, says this will help increase private pension cover for future generations.
“Contributions made earlier in working life can be more valuable due to compounding growth, and while retirement may seem far away for those starting their careers, this will help them get to retirement more easily and affordably.”
j.beard@dailymail.co.uk