Pension trap: Millions of Britons wrongly believe they’re saving enough for retirement

Pension: Expert gives advice on preparing for retirement

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A huge number of people across the UK wrongly believe they are saving enough because they are contributing the minimum amount required by the Government, according to new research from B&CE. This could lead to more and more Britons heading towards only a basic retirement.

More than half (57 percent) of auto-enrolment pension savers are only making the minimum employee contribution that is required by law, and almost two thirds (65 percent) are receiving the bare minimum contribution from their employers.

The minimum contribution rate of eight percent is likely to only provide a ‘basic’ level of retirement, according to the Pension and Lifetime Savings Association’s Retirement Living Standards.

The standards outline that savers will need £10,900 a year for a basic level of retirement, £20,800 for a moderate level of retirement and £33,600 for a comfortable level of retirement for a single person.

Just seven percent of savers are aware they are only saving enough for a ‘basic’ retirement, with the rest believing they will achieve a ‘moderate’, or even ‘comfortable’ retirement, according to Ignition House.

Worryingly, four in ten people are confident they are saving enough on the basis that the contribution rates have been set by the Government.

Commenting, Phil Brown, director of policy at B&CE, warned Britons they could be hurtling towards a retirement they did not expect if this pattern continues.

He said: “For most workers across the UK, saving something for retirement is better than saving nothing at all – particularly considering your employer also contributes.

“But we can’t escape the fact that millions of hardworking people are not saving enough for the level of retirement they expect.

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“Affordability obviously plays a role in this, but the research is clear that in most cases, people believe that because they’re saving what they’ve been told to by those who run the country, they’re saving enough.”

Contributions of around 16 percent are required to reach an adequate retirement income, which is around two thirds of someone’s pre-retirement earnings, according to a report from The Pension Commission in 2005.

At that time, it was believed half of this would come from auto-enrolment, and the other half from people saving into additional voluntary pensions.

However, almost half (43 percent) of savers have not considered paying more into their pension outside of their minimum auto-enrolment contributions.

Some 46 percent of respondents did not even know they were allowed to pay in more than the minimum, and two-thirds (64 percent) of people only had less than £10,000 in additional savings.

B&CE has called on the Government to set out plans for a review of the minimum contributions required for auto-enrolment and to implement the recommendations of the 2017 automatic enrolment review, once economic circumstances allow.

The recommendations called for workers aged 18 and over to be covered by auto-enrolment, and for contributions to count from the first pound earned.

B&CE has also warned careful consideration must be given by the Government as to whether the minimum contribution level should be raised, and if so, what level it should be set at.

It must also be decided who should shoulder the burden of an increase, the employer or employee.

While low contribution levels appear to be at least in part due to a lack of saver awareness, a substantial proportion of pension savers simply cannot afford to save more.

Against a backdrop of rising energy costs and inflation, almost half of savers felt that they would need to opt out if employee contribution rates were set any higher.

Many savers felt employer contributions should at least match what the employee currently pays.

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