As many as six out of ten young Brits, aged between 16 and 34, are not saving a single penny towards their retirement, new research indicates.
Research from Prudential finds 20 year-olds on average lifetime earnings may have to work to the age of 72, while 30 year-olds are also facing longer working lives, unless they increase the current inadequate level of pension savings.
Using these figures Prudential provides an anticipated scenario facing a 30 year-old hoping to retire at 65, using future basic state pension, state second pension and future earnings growth.
The pensions specialist finds an additional monthly saving of around £340 is needed to achieve a pension of two-thirds of their annual pre-retirement income. If they defer retirement until age 70, an additional monthly saving of £150 is required in order to achieve the same result.
Head of retirement planning at Prudential Debbie Falvey, says many people take it for granted they will be able to retire at 65. But the figures show this age is likely to become a luxury unless people start saving enough to meet their retirement plans.
The provider says a 30 year-old reaching 65 will have a projected annual income of £49,500 assuming their salary increases by 2% per year. To receive a target pension of two-thirds of their annual pre-retirement income at age 65, they would be required to save £400 a month.
It claims Brits in this age bracket currently save around £62 a month, while only 3.5% claim they are saving over £300 a month.
Prudential, additionally, calculates a 20-year old will be earning £60,340 by the time they reach 65 so to receive a target pension of two-thirds of their pre-retirement income at age 65 it says they would need to be saving £320 a month.
It claims only 6.5% of those aged between 16 and 24 are currently saving over £200 per month.
Falvey says: “People across the UK face taking some hard decisions. Ignore retirement planning and the reality is you will be working well into your old age. As society as a whole is living longer than ever before, people of all ages need to start planning and saving for retirement now.”
The research falls in line with a report released yesterday by the Department for Work and Pensions (DWP), pointing to concern over the lack of pensions understanding by UK individuals, along with the way in which pensions are communicated to the UK public.
The DWP says its research, which forms part of the governments 'Informed Choice' programme, reveals a lack of knowledge, apathy, scepticism and perceived low rates of return in pensions.
The DWP has published information sheets in order to tackle these concerns, including helping individuals understand what they need in retirement, also further emphasising the importance of saving early.
It says while the study sheets enhanced a better understanding of pensions through explanation and information of the schemes workings, some individuals remained sceptical over the perceived inflexibility of pensions.
The DWP says: “Information can help address these issues. However, people's uptake of pensions depends on whether they believe they can afford to pay into one, preferences for other investments and other pressing financial priorities.”
It adds: “Regardless of how clearly and concisely pensions and their benefits were explained in the research, for some, they would not overcome these barriers.”
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Gareth Vorster on 020 7968 4554 or email [email protected].IFAonline
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