Published On: Thu, Aug 22nd, 2019

Pension WARNING: 38% of savers face annual £12,000 pension shortfall | Personal Finance | Finance

While the state pension may provide some income once one has reached state pension age, a private pension pot can be something many people rely on when it comes to their retirement. From personal pensions to a workplace pension, many people will make pension contributions during their working life. However, research has suggested that one age group may be at risk when it comes to their finances during their later years. According to a new report by Scottish Widows, the average saver currently in their 20s faces an annual £6,500 shortfall in their income, in every year of retirement.

The Future of Retirement report found that the average saver believes they need an annual income of £25,000 for a comfortable retirement.

However, at current saving rates, their pension pot will only provide an income of £18,500 per year, Scottish Widows said.

What’s more, the report has highlighted that “disengaged” savers and the self-employed could face even steeper gaps between the pension pot they expect to have, and reality.

According to the report, 38 per cent of the population are classed as “disengaged” savers – a cohort made up of individuals who do not know how much they are saving, or if they are saving anything at all.

Despite also anticipating a required retirement income of £25,000 each year, these people may only receive £13,000 per year if they are automatically enrolled into making pension contributions.

Based on these estimations, this is a shortfall of nearly half the amount they expect to need at £12,000.

The report proposes that boosting the minimum contribution rates could help to bridge the gap for this cohort.

Self-employed people may also be at risk, the report said, due to them not being subject to the automatic enrolment system.

According to the report, 32 per cent of self-employed people between the age of 20 and 39 are saving adequately for retirement, however 41 per cent save nothing at all.

And, while income expectations for these people may be slightly lower than average, the figures suggest they may still be set to experience a sizeable annual shortfall of £5,000 by the time they retire.

Pete Glancy, Head of Policy at Scottish Widows, said: “Automatic enrolment is improving the retirement prospects for many, but those who fail to save beyond the default requirements of the scheme will be faced with a significant income gap.

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