06 Jul 2017

Are you 'sleep walking' into a poorly-funded retirement?

Are you 'sleep walking' into a poorly-funded retirement?

More than two-thirds of under-30s risk sleepwalking into a major shortfall in their pensions, which could lead to hardship in old age.

The 13th annual Scottish Widows retirement report reveals that, despite the success of auto-enrolment – 80% of 22-29-year-olds are paying into a pension – 70% of them are not putting away enough.

This puts at risk young people's ability to achieve their desired income of  just over £23,000 a year for a comfortable retirement.

The study found that average pension contributions are £184 a month (including employer contributions) – meaning they can expect an annual pension of just £15,200 including the current state pension.


The pension firm says that a 30-year-old contributing the current minimum of 1% to their workplace pension (matched by their employer) will achieve an income in retirement of only £9,734.

And, even when the minimum contributions rise to 8% (employee and employer combined) in 2019, they will only achieve an income of £14,047.

Scottish Widows suggests a combined 12% employer and employee contribution as an adequate level of pension saving. 

The pension firm warns there is also evidence that more people will begin to opt out of pension schemes as contributions increase through auto-escalation from April 2018.

When 22-29-year-olds were asked if the planned increases would affect how they save, less than half committed to staying enrolled.

If someone starts saving into a pension at 25, it has been calculated they would need £293 put aside each month to reach a £23,000 annual income. Not starting to save until 35, the monthly figure would need to jump to £443 and at 45 this would be £724. For someone who left retirement saving to their 50s, they would need to put away £1,445 a month to enjoy the £23,000 annual pension.

Auto-enrolment boost

Catherine Stewart, a retirement expert at Scottish Widows, said: “There is no doubt auto-enrolment has been a success in kick-starting the savings habit for millions, but it is not a silver bullet.

"Auto-enrolment may well be lulling people into a false sense of security that they are putting away enough for a comfortable retirement.

"For many, that is simply not the case, particularly given retirement is looking more expensive than ever.

“While retirement may feel like a long time away for those in their 20s, it’s really important they start to think about it as soon as possible."

Despite the dangers of pensioner poverty, over half of those in their 20s say they can’t afford to save for the long term because of competing financial priorities.

Those in their 20s are saddled with twice as much debt as other age groups, on average owing more than £20,000. Almost four in 10 have student loans eating into their monthly pay cheques, one in five have unpaid credit card bills and 15% have other loans to pay off.

Pension advice

Following sweeping pension reforms in 2015, there is more scope than ever to arrange your finances the way you want them.

For example, you can now continue to work and take some of your pension benefits – and can even access your entire pension savings and draw up your own investment strategy.

That flexibility is great, but there is a lot to weigh up when considering whether to touch your pension. It may be in your best interests to stay in your defined benefit scheme - obtaining professional advice is therefore crucial.

Aberdein Considine’s independent financial advisers - who are authorised and regulated by the Financial Conduct Authority (FCA) - can guide you through the pension maze and help you tailor a plan to your circumstances.

Click here to find out how we could help you.

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