Millions of over-50s planning for retirement could be pushed into poverty and financial insecurity, a situation that has been worsened by the coronavirus crisis. The report found more than 90 percent of private sector workers using a “defined contribution” pension are not likely to be able to afford a comfortable retirement, and will be forced to live on less than their expected income.
Some over-55s were forced into leaving work earlier than they expected due to the pandemic.
Redundancies have been higher for older workers throughout the crisis.
According to trade body Pensions and Savings Association, a “moderate” income in retirement comes in at £20,200 a year.
But how can you save for a comfortable retirement – or at least one that will keep your head above water in your later years?
“People may well just think that because they are contributing the amount required under automatic enrolment in the workplace, surely this will be enough for a decent retirement pot.
“But just because someone has a workplace pension doesn’t mean they are home and dry.
“Many of us underestimate just how much is required to generate a comfortable retirement, and often people fall well short of what is needed.
“Thanks to auto-enrolment at least five percent gross of your salary (4 percent net) is taken out of your pay packet each month and put into your pension, with your employer contributing a further three percent.
“However, this contribution amount is highly unlikely to be enough for future retirement, particularly as we living longer.
“The ONS predicts that an increasing number of us will even reach the age of 100, so along with your state pension, your private pension provision will have to generate income to sustain you in retirement for potentially 30 or 40 years.
“For example, if a 25-year-old on a current average annual UK salary of £28,700, remains in a similar role and is auto-enrolled until the age of 68, they might expect to receive a retirement income of around £5,600 per year in real terms.
“The need for income in retirement is personal but, taking account of the fact that most mortgage are repaid, an average worker may need 66 percent of their earned income in retirement. In this example the shortfall in retirement income is a staggering £13,400 per year.
“Saving for a pension as soon as possible can yield benefits, as years of compounding returns can work their magic.
“The value of contributions made in your 20s, for example, will be around four times greater than a decade’s worth of contributions made in your fifties thanks to investment returns.
“Although in an ideal world it is best to start saving for retirement at the earliest opportunity, other financial commitments can inevitably make this difficult. But it’s never too late to save for retirement.
“If you are fortunate enough to have your employer make contributions to your pension plan, along with favourable tax treatment and potential for investment growth, any pension contributions you make in later life can still have a big impact on your standard of living in retirement.”