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20 Oct 2016

Annual UK pension deficit is ‘£11bn´ says report

New analysis of pensions savings in the UK, reported by the Financial Times, suggests that the amount of money savers are putting away is currently falling short of their needs by £11bn per year.

According to the nationwide poll, conducted by YouGov and commissioned by consultancy Aon Hewitt, only 16% of the 2,000 people questioned were saving enough money to maintain their current standard of living when they retire.

Taking the wider population into account, this suggests that around four million people – or half the number of people saving into so-called defined contribution (DC) benefit schemes – might not be saving enough for their later years.

In order to be adequately prepared for their retirement, Aon calculated that DC pension fund members would need to pay an additional £1,400 per year into their pension funds. When applied to the 8.1m individuals saving into these schemes throughout the country, the savings gap worked out at £11.4bn.

The report noted that there was an “enormous disconnect between scheme members´ expectations and the reality of pension saving,” with many pension scheme members admitting to having no idea how much income their pension pot would deliver.

Around 48% of those surveyed were only putting 5-10% of their annual salary into the pension, while 37% were paying less than 5% - that´s despite the fact that Aon estimates the average worker would need to put 18-19% of their salary aside for their pension if they wish to enjoy a comfortable retirement.

Commenting on the findings, Aon partner and head of DC consulting – Sophia Singleton – said that although auto-enrolment has boosted pension scheme participation, it´s now “vital […] to ensure that these new entrants save a sufficient amount for retirement.”

“It is crucial for employers and trustees to have the right structures in place to make retirement saving easier to understand, which would encourage employees to contribute more,” she advised.

Copyright M2 Bespoke 2016

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