One fifth of the population believe they can survive on a retirement fund of less than £50,000, equivalent to £44.24 a week.
In it’s latest Lasting Lifestyles report, compiled by the Future Laboratory, Friends Provident says while most people think £50,000 would provide a comfortable retirement in reality it would only provide £44.24 a week after tax, just over a quarter of the minimum wage.
At the moment somebody earning the minimum wage of £5.05 an hour and working an average 37.2 hours a week earns £162.80, which is £118.56 more than a pensioner living off a retirement fund of just £50,000.
The report points out the fund would provide an average daily allowance of £6.32, which it says is just enough to buy a pint of milk, cheese, tea bags, a white sliced loaf and a pint of beer, but only before taking into account other costs such as housing, bills and unexpected expenses.
Friends Provident says while people do rely on the state pension to top up their fund, the current allowance of £84.25 would only give pensioners with a £50,000 pot just £128.49 to live on each week, which is still £34.31 less than the minimum wage.
It also warns uncertainty surrounding future pension reforms following the publication of the white paper two weeks ago, means the level of the state pension in 20 to 30 years time cannot be predicted so savers may end up almost totally dependent on their own savings.
The company says these findings reveal the complete lack of consumer understanding about pensions and saving for retirement, which makes it even more important for people to start planning their financial future.
But the report suggests the signs are not promising, with 33% of people having no idea how much they need to save each month to create a comfortable pension income, while 35% have no idea how much they can invest on a monthly basis.
To help aid consumer understanding, Friends Provident says it has joined forces with the Life Academy charity to offer three new customer services for members of it’s group pension schemes:
- Interactive pension forecaster
- Investment planner
- Financial education site
It says the new offerings are designed to help customers learn more about personal finance, better understand their pension requirements and make informed choices over which type of pension fund to choose.
Jeremy Ward, head of pensions marketing at Friends Provident, says the continued lack of understanding of pensions is a serious issue, and by ignoring it the country is facing a “pensions time bomb”.
He says: “Despite the importance of saving for retirement having a high media profile in recent months, the message still isn’t getting through and consumers are still confused about when they should start saving and how much they should put away each month. This is a wake up call for consumes to start saving sooner rather than regretting it later."
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