Young people will have to work and save non-stop from age 22 until they hit 77 to get a pension of the kind earlier generations enjoyed, a new study shows.
Start saving later or take a break for any reason, and you would have to work until even later in your 70s or into your early 80s to get a decent pension.
This could signal the ‘death of retirement’ for many people, who might end up working well beyond the traditional age to stop even if they try to do all the right things, according to pension firm Royal London, which compiled the report.
It looked at how long an average earner who saved at the 8 per cent contribution level – the minimum auto-enrolment requirement from spring 2019 – and built up a full state pension would have to work to get the same pension as their parents.
The study assumed that someone was in the most common defined contribution scheme, rather than a more generous final salary scheme, and would buy an annuity at retirement.
It also assumed someone was on the national average wage of £27,600 a year, and their target was a ‘gold standard’ pension of two thirds of pre-retirement income, with inflation protection and provision for a spouse after death.
Royal London found that someone would have to work without a break until age 77 to achieve this goal, and even if they aimed for the ‘silver standard’ of half their pre-retirement income they would need to work until they were just over age 71.
Although a start date of 22 for pension saving will become the norm for future generations under auto-enrolment, people are still likely to have gaps in contributions due to unemployment, sickness or family responsibilities.
Former Pensions Minister Steve Webb, now policy director at Royal London, said: ‘Getting millions more people saving through automatic enrolment is a huge step forward, but many face a cruel disappointment if they think that current minimum contribution levels will deliver them the sort of retirement they are looking for.
‘Without significant increases in contributions, we could be witnessing the death of retirement. This report shows that today’s workers are unlikely to be able to secure the quality of pension provision enjoyed by many in previous generations without either working well beyond pension age or contributing substantially more.’
This entry was posted by John on Monday, February 15th, 2016 at 3:12 pm and is filed under Pension news.
