Aon Hewitt, the management consultancy and solutions firm, have revealed the findings of a nationwide poll commissioned to find how much people are saving for retirement. More than 2,000 pension savers were surveyed and the poll found that only 16 per cent were saving enough to maintain their standard of living in retirement (1).
Analysis of the findings suggested around 4m people, around 50% of those saving into defined contribution pension schemes, are under-saving for later life (1). If we look at that in financial terms, workers are under-saving for their retirements by up to £11bn a year. To correct this would take an additional annual saving of £1,400 per year for everyone in a defined contribution scheme (3).
Aon Hewitt estimates the scale of this alarming savings gap at £11.4bn when applied to the 8.1m saving into DC schemes across the UK (1). A saving gap of this scale reminds us that while auto enrolment has got more us saving for retirement it hasn’t addressed the wider question of how much we are putting away for retirement.
Sophia Singleton from Aon Hewitt addressed this point. (2) “Auto enrolment has successfully increased participation in pension schemes, but the vital next step is 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.”
A survey, carried out by YouGov, found that 37 per cent of pension scheme members were paying less than 5 per cent of their salary into their pension, while just under half were investing 5-10 per cent of their salary (2). These results show a real disparity with the amounts Aon believe we should be saving. Their research suggests that someone in their mid-20’s earning £22.500 should be saving close to 20% of their annual salary, as should a 40 year old earning £30,500 (3).
Perhaps the most worrying element of the Aon survey is that up to 2.75m pension savers simply don’t know much income their pension savings will deliver. So perhaps the important question is how this message should be best communicated to the millions trying to save for retirement?
The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.