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Pension savings are usually built up throughout a person’s working life but new data from the ONS revealed that many people are struggling to do so. The main cause of this reluctance or inability to save is because of a general lack of affordability.
All of the respondents, aged between 16 and 59, revealed that the main reasons that held them back from contributing anything to their pensions is due to low income levels, high living costs and general unaffordability.
Worryingly, it was also revealed that across all age ranges, and average of 31 percent of respondents weren’t enrolled into a pension scheme.
Interestingly, when asked if they have been influenced by events to decide on pensions, savings or investments, the vast majority of respondents revealed that they had made no changes to their financial arrangements.
This could mean that some people could be caught “sleep walking” into financial difficulty as the UK falls into a recession.
John Yates, the Principal of Defined Contribution Consulting at Buck, commented on the ONS’s findings: “The ONS’ findings are a stark reminder that a huge proportion of the population are still not confident that they will have a good standard of living in retirement.
“With the full State Pension providing £175 a week, a common question is how much do I need to save for retirement to live comfortably?”
He went on to calculate what this figure could be, which may be much higher than many people realise or are comfortable with: “A 40 year old today can, on average, expect to live until 85 years old if they’re a man, or 87 years old if they’re a woman.
“So, with potentially 20 years or more of retirement to pay for, if an individual wanted an income of £1,000 a month plus the State Pension, they would need savings of around £250,000.”
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This may be a shocking sum but fortunately, John details that a healthy retirement may be more attainable than many people realise: “The good news is that through your employer’s pension scheme, you might find that half, or possibly more, of the total contribution is paid by a combination of your employer and the Government through tax relief.
“However, it’s important to realise that although automatic enrolment provides a minimum total contribution of eight percent of your earnings, on average people need to be saving around 15 percent of their earnings to achieve an adequate income in retirement.
“The more you save, and the earlier you save it, the easier it will be to hit your retirement target.”
Automatic enrolment rules were introduced in 2012 and they force employers to place all eligible staff into a pension scheme.
Both the employee and employer will then contribute into this scheme.
To be eligible for auto-enrolment, staff need to be:
- aged between 22 and State Pension age
- earning more than £10,000 a year
- working in the UK
Once an employee is entered into a scheme, they will be sent a statement each year from the provider telling them how much is in the pot.
They’ll also be provided with an estimate of how much they’ll get when they eventually retire and start making withdrawals.
If the employee leaves the company, the pension will still belong to them and the money will remain where it is unless they decide to make changes.
Employees will generally be able to join another workplace pension scheme elsewhere and they may be able to carry on making contributions to their old pensions or combine their assets.
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